The base rate of Nepali commercial banks declined in the third quarter of the current fiscal year as banks reduced their interest rates on deposits. The financial reports of commercial banks show the base rate has declined by 0.28 percentage points by mid-April, 2023. The average base rate of banks was 10.80 percent until mid-January which came down to 10.51 percent by mid-April.

Banks started reducing interest rates on deposits in mid-January. As their cost of funds decreased, the base rate also decreased accordingly.

Currently, the base rate is the main tool to determine bank interest rates on loans in Nepal. Banks have been determining the loan interest rate by adding a premium to the base rate. According to the latest decision of the Nepal Bankers' Association, banks can determine the interest rate by adding a maximum of 5 percent premium to the base rate. With the base rate starting to decline, borrowers may get loans at cheaper interest rates in the coming days. However, the possibility of a significant reduction in borrowing rates is unlikely at the moment as the base rate has declined marginally. Bankers say the base rate will decrease further by mid-July which will make lending rates cheaper. Banks have been calculating the base rate on a quarterly basis and the last quarter of the current fiscal year starts from Baisakh. This way, the effect of the interest rate cut in Baisakh will be seen in Shrawan (July-August). Among the 21 commercial banks, the base rate of the two banks increased in the third quarter. The base rate of Nepal SBI Bank has increased by 0.33 percent and Machhapuchhre Bank by 0.08 percent compared to the second quarter. The base rate of Nepal SBI, which was 10.75 percent till mid-December reached 11.08 percent in mid-April. Similarly, the base rate of Machhapuchhre climbed to 11.31 percent in mid-April from 11.23 percent in mid-December. As of mid-April, the base rate of five banks has come down to single digits. Among them, Rastriya Banijya Bank's base rate stood at 8.47 percent, Standard Chartered Bank Nepal's at 9.27 percent, Nepal Bank's at 9.92 percent, Everest Bank's at 9.94 percent and Nabil Bank's at 9.99 percent. Currently, Sunrise Bank's base rate is the highest among commercial banks. The bank's base rate stood at 11.34 percent in mid-April. As the base rate is higher, the interest rates on loans of Sunrise Bank are higher than other banks. Over the past year, interest rates on deposits kept on increasing due to a prolonged liquidity crunch. As banks' cost of funds increased due to a surge in deposit interest rates, the base rate also increased during this period ultimately making loans expensive for borrowers. The banks will also have to reduce the spread rate to 4 percent by the end of Ashad (mid-July) which is currently 4.4 percent. The Nepal Rastra Bank has instructed the banks to lower the spread rate to 4.2 percent by the end of Chaitra (mid-April) and 4 percent by the end of Ashad. As a result, bankers say that the lending rate will decrease.