The Effect of Bank Interest Rates on Stock Market of Nepal

Abstract

This study examines the impact of bank interest rates on stock market performance in Nepal, focusing on the NEPSE Index as the dependent variable. Key independent variables include the deposit rate, lending rate, and overall bank interest rate. Utilizing secondary data from 2003 to 2022, sourced from website of Nepal Rastra Bank’s Bank and Share Sansar, the study employs a descriptive research design alongside correlation and regression analyses to assess the relationships among variables.
Findings reveal that deposit rates exert minimal influence on the stock market. The correlation between the NEPSE Index and the bank rate is weakly positive, indicating no significant association. However, the weighted average lending rate demonstrates a statistically significant negative impact on the NEPSE Index, suggesting that increases in lending rates tend to depress stock market performance. This inverse relationship implies that higher borrowing costs may deter investment and reduce overall market activity.
These insights contribute to a nuanced understanding of macroeconomic dynamics and offer practical implications for policymakers, investors, and financial institutions aiming to interpret market movements in response to monetary policy shifts.