IMPACT OF INTEREST RATE ON STOCK

MARKET OF NEPAL

BY
Swastika Acharya
Exam Roll No: 27615/20
TU Regd. No: 7-2-54-63-2020

A Summer Project Report Submitted to

Faculty of Management, Tribhuvan University
in partial fulfillment of the requirements for the degree of
Bachelor of Business Administration

at the
Mahendra Multiple Campus, Dang
Tribhuvan University

Ghorahi
November
2024
 STUDENT DECLARATION

I hereby declare that the project work entitled “Impact of Interest rate on Stock
Market of Nepal” submitted to the Faculty of Management, Tribhuvan University,
Kathmandu is an original piece of work under the supervision of Mr. Roshan
Acharya, faculty member, Mahendra Multiple Campus, Dang, and is submitted in
partial fulfillment of the requirements for the degree of Bachelor of Business
Administration (BBA). This project work report has not been submitted to any
other university or institution for the award of any degree or diploma.

Signature: …………….
Name of Student: Swastika Acharya
Date: 22/11/2024

www
 CERTIFICATE FROM THE SUPERVISOR

This is to certify that the summer project entitled “Impact of Interest rate on stock
Market of Nepal”is academic work done by “Swastika Acharya” in the partial
fulfillment for the degree of Bachelor of Business Administration (BBA) at
Faculty of Management, Tribhuvan University under my supervision as per the
procedure and format requirements laid by the Faculty of Management, Tribhuvan
University. To the best of my knowledge the information presented by her in the
summer project report has not been submitted earlier. I, therefore, recommend the
project work report for evaluation.

…………………………………

Signature of the supervisor

Name: Roshan Acharya

Date: 22/11/2024
 ACKNOWLEDGEMENT

I would like to graciously thanks to the Faculty of Management, Tribhuvan

University for providing me with the opportunity to work on this summer project.
I am grateful to the faculty members who have imparted knowledge and skills that
were crucial in carrying out this research.

I am also grateful to my supervisor, Roshan Acharya, for his guidance and

support throughout the project. His constant feedback and advice were
invaluable in the successful completion of this research.

I would like to acknowledge the Research Committee for providing me with the
necessary resources and support to carry out this project. Their assistance was
instrumental in the accomplishment of this research.

Lastly, I would like to extend my appreciation to my senior brother/sister and friends

who play a crucial role in this study. Their contributions were vital in gathering data and
drawing conclusions.

Thank you..
 TABLE OF CONTENTS

TITLE PAGE……………………………………………………………………………….i

STUDENT DECLARATION.................................................iiError! Bookmark not defined.

CERTIFICATE FROM THE SUPERVISOR.........................................................................iii

ACKNOWLEDGWEMENT..................................................ivError! Bookmark not defined.

LIST OF TABLE.................................................................................................................vii

LIST OF FIGURES.............................................................................................................viii

LIST OF ABBREVATIONS....................................................................................................ix

EXECUTIVE SUMMARY........................................................................................................x

CHAPTER-I...........................................................................................................................1

INTRODUCTION..................................................................................................................1

Context Information...........................................................................................................1

Statement of the Problems..................................................................................................2

Purpose of the Study...........................................................................................................3

Significance of the Study....................................................................................................3

Literature Survey................................................................................................................4

Conceptual Review.............................................................................................................4

Empirical Review...............................................................................................................7

Research Methodology......................................................................................................9

Research Design...............................................................................................................10

Data Collection Procedure...................................................................................................10

Population and Sample........................................................................................................10

 Listing companies of NEPSE..............................................................................................11

Data Analyzing Tools..........................................................................................................11

Statistical Tools...................................................................................................................12

Limitations of the Study.......................................................................................................15

CHAPTER –II......................................................................................................................17

DATAPRESENTATION AND ANALYSIS ......................Error! Bookmark not defined.

Organization profile..........................................................................................................17

Variables Define................................................................................................................17

Data presentation...............................................................................................................19

Weighted Average Deposit Interest rate...........................................................................21

Weighted Average Lending Interest rate..........................................................................21

Bank Rate..........................................................................................................................22

Treasury Bills rate.............................................................................................................23

NEPSE Index...................................................................................................................24

Listed Sectors and Market Capitalization.........................................................................25

Descriptive statistics of study variables.............................................................................25

Correlational Analysis.......................................................................................................26

Regression Analysis...........................................................................................................27

Major Findings and discussions........................................................................................30

CHAPTER-III.......................................................................................................................30

CONCLUSION AND ACTION IMPLICATIONS..............Error! Bookmark not defined.

Conclusion............................................................................................................................31

Action Implementations........................................................................................................32

Scope for the future research................................................................................................32

REFERENCES.....................................................................................................................33

APPENDIX
 LIST OF TABLES

Listing companies of Nepse 11

Different interest rate and Nepse closing index 20

Different T bills rate from 2013 AD to 2022 AD 25

Descriptive analysis 26

Bivariate correlation analysis 28

Regression statistics 29

Goodness of fit of regression (ANAVA*) 30

LIST OF FIGURES

Structure of Weighted Average Deposit Interest rate 21

Structure of Weighted Average Lending rate 22
Structure of Bank rate 23
Structure of Weighted Average T-bills rate 23
Structure of NEPSE Index 24
 LIST OF ABBREVATIONS

INF : Inflation
NEPSE : Nepal Stock Exchange
NRB : Nepal Rastra Bank
SCs : Securities
SEBON : Security Exchange Board of Nepal
WADR : Weighted Average Deposit Interest Rate
WALR : Weighted Average Lending Interest Rate
WATBR : Weighted Average Treasury Bills Interest Rate
 EXECUTIVE SUMMARY

This study was performed with an objective to find the impact between interest rate and
stock market, impact of bank rate on stock market return, the nature of investors on share
investment, the impact of deposit interest rate on stock market return, impact of lending
interest rate of stock market return. Specifically, when interest rate increases, stock prices
tend to decline, and when interest rates decreases, stock price tend to rise.

In such cases, if the rate of interest paid by banks to depositors increases, people switch
their capital from share market to bank. This will lead to decrease the demand of share and
to decrease the price of share and vice versa. On the other way, when rate of interest paid
by banks to depositors increases, the lending interest rate also increases lead to decrease the
investments in the economy which is also another reason of decreasing share price and vice
versa. So, theoretically as per the theory of pricing inverse relationship between share price
and interest rate.

The study follows quantitative research method and uses correlation analysis and
regression analysis by using four independent variables to examine relationship between
interest rate and share prices. This study has investigated these implications in the context
of our country to see whether the results support the previous studies or not.
 1

CHAPTER-I

INTRODUCTION

Context Information

The Nepalese stock market, also known as the Nepal Stock Exchange (NEPSE), is a
platform for Nepal to trade for publicly listed stocks. It has been gaining momentum in
recent years, with more and more investors becoming interested in investing in it. The
history of securities market in Nepal began with the flotation of shares by Biratnagar Jute
Mill Ltd and Nepal Bank Limited in 1937. The first issuance of government bond in 1964
and the establishment of Securities Exchange Centre Ltd in 1976 were other significant
development relating to capital market. Securities exchange centre was established with an
objective of facilitating and promoting the growth of capital market. Before conversion into
stock exchange, it was the only capital market institution undertaking the job of brokering,
underwriting, managing public issue, market making for the government bonds and other
financial services. Capital market, inter alia, converted Securities Exchange Centre into
Nepal Stock Exchange in 1993. the basic objective of NEPSE is to provide the liquidity to
the government bonds and corporate securities by facilitating transactions through
intermediaries such as:- brokers, market makers etc. The other objectives of the NEPSE are
to protect investor’s rights and develop a secondary market as prescribed in the
Memorandum of Association (MOA) and Article of Association ( AOA) of NEPSE.

Normally, the stock market index is taken as a barometer of an economy. Growth in stock
index is normally considered as a good sign since it implies the investors are confident
about the future prospect of the economy. It helps promote investment in the economy.
However, a rapid increase in the stock market index is always a matter of concern. If the
increase in the index is not justified by the fundamentals, such a rise cannot be sustained
eventually the index will plummet endangering the economic and financial stability.
Hence, it is essential that the policymakers keep eyes on the stock market development and
be ready to take appropriate measures, if needs arise, to prevent the buildup of bubbles and
collapse in the market. For this, it is necessary to understand the relationship between the
stock market index and the factors that influence it. Several factors may affect the stock
market. Any factors that have an effect on cash flows of firms or discount rate will have
 2

impact on the stock market. However, which factors affect to what degree will vary from
country to country, depending on the size, type and other characteristics of the economy
and the market.

In this context, this paper aims to analyze the relationship between the NEPSE index and
interest rate variables in Nepal using yearly data that span from mid-July 2016 to 2024. In
addition to main variables, this paper also assesses the impact of changes in price. It is
expected that the findings of this study would provide some meaningful insights to
understand the determinants behind the performance of Nepalese stock market, useful for
both policymakers and investors.

Interest rate is one of the important macroeconomic variables, which is directly related to
economic growth. Generally, interest rate is considered as the cost of capital, means the
price paid for the use of money for a period of time. From the point of view of a borrower,
interest rate is the cost of borrowing money (borrowing rate). From a lender’s point of
view, interest rate is the fee charged for lending money (lending rate).

Statement of the Problems

Interest rate can only affect, but not determine the stock market (Mueller, 2006). When the
interest rate is increased, borrowing will become difficult. Company will have less money
to expand the business and the profit will be affected. Bonuses and dividends will be cut
and the investors will be affected eventually. Stock market will then become a less
attractive instrument for investment. However, interest rate is not the only factors that
affect the stock market. Stock market index might be trending upward due to other factors
like economic growth, political issues and monetary policies even when the interest rate is
high.

There is no uniform finding about the study. The most studies have been conducted by
focusing the macroeconomic variables effect on the stock market. In Nepal, there is no
study has done in the impact of interest rate on share market of Nepal. Therefore this study
is important in order to determine the impact of interest rate (deposit interest, lending
interest, bank rate and T-bills rate) on share market of Nepal.
 3

The general problem of the study is that it is focus on the impact of interest rate on stock
market of Nepal.

The specific statements of problems are as follows:

 What is the relationship between bank interest rate and stock market return?
 What is the impact of deposit & lending interest rate on stock market return?
 What is the effect of short term interest rate and stock market return?

Purpose of the Study

The general objective of the study is to find the relationship between interest rate and stock
market. Here are some specific objectives of the study:
 To find out the relationship between bank interest rate and stock market return.
 To examine the impact of deposit & lending interest rate on stock market return.
 To analyze the effect of short term interest rate and stock market return.

Significance of the Study

Stock exchange and interest rate are two crucial factor of economic growth of a country.
The impact of interest rate on stock exchange provides important implication for monitory
policy, risk management practices, financial securities valuation and government policy
towards financial markets. The study will seek the existence of market efficiency on the
Nepal Stock Exchange (NEPSE). In order to receive the confidence of the investors and to
ensure the level playing field for all the market participants, this study will be useful to
make efficient market mechanism for investors.

In addition, the study would also be useful to students, academicians and stock analysts.
This paper would be helpful for further study about the stock price. The study has analyze
the impact of interest rate on stock market by considering the above all issues. So, the study
is significant to investors, brokers, students, academicians, policy makers, government
officers, stock analyst, bankers and managers in order to make rational decisions, effective
policies and to make further studies related to stock price.
 4

Literature Survey

It is the act of analyzing as well as critically finding the similarities and differences in the
previous related studies. It also entail about major findings as well as reviewing the tools
and techniques used by the previous studies on impact of interest rate on share market of
Nepal. The review of literature in this study has been organized as follow:
Conceptual Review
Empirical Review

Conceptual Review

Theory of Pricing

Marshall (1990), from the classical economic theory and early neoclassical economics’
theory point of view asserted that equilibrium market-price would be determined by the
forces of demand and supply under the perfect market competition model assumption. This
position does not have any divergence from the classical value theory. Clarke (1982),
defines price as the assigned numerical monetary value of a good, service or asset. If there
is excess supply of money in the market, this will exert a downward pressure on prices and
similarly if there is excess demand for money there will be a built up on the prices. Mishkin
(1986), while noting that interest rate is the price lender charge on borrowed funds, further
contended that the forces of demand and supply in the market would attain the market
equilibrium interest rate. This position is in conformity with the classical economic theory.
The supply side of this money market represents the supply of loanable funds while the
demand side represents the demand for loanable funds. Therefore the interest rate
determination is at equilibrium at the point of intersection of the supply and demand.

Fisher’s Theory

Suggest that changes in the short term interest rate occur principally because of the changes
in expected rate of inflation. Going further we assume that the expectations held by the
market agents about rate of inflation are broadly correct. A principle reason for the changes
in the interest rate becomes changes in the rate of inflation. Thus we write r=i-p where r is
the real interest rate, I is the nominal interest rate and p is the rate of inflation (Mishkin,
2010). Named after the American economist Fisher (1930), this is the most well-known
 5

theory and forms the basis of the standard recommendation on real interest rate. Argues
that competitive financial markets would establish the nominal interest rate on deposits
that, are positive in real terms, because savers must be induced to hold financial rather than
real assets and on average real assets grow in nominal terms at the rate of inflation. Thus
the nominal interest must equal the expected inflation rate plus a small underlying real rate.
Lending rate will in turn be positive in real terms since they are based on the cost of
deposits plus a small margin covering the cost of intermediation, cost of the reserve
requirement, taxes and risk. Consequently many economists recommend that inflation must
be kept low if we want to keep nominal interest rates low. Main criticism of the fishers
theory is that it has deficiency because it has partial equilibrium theory that confines itself
to the analysis of the capital markets and works with the assumption that the prices of
goods and services are already determined (Mishkin, 2010).

Loanable Funds Theory of Real Interest Rate

Loanable funds theory of interest rate determination views the level of interest in the
financial market as resulting from the factors that affect the supply and demand of loanable
funds. (Saunders, 2010) interest rate in this theory is determined just like the demand and
supply of goods is determined, supply of loanable funds increases as interest increases,
other factors held constant. He goes further to explain that the demand for loanable funds is
higher as interest rate fall, other factors held constant. Saunders (2010), identifies two
factors among others causing demand curve for loanable funds to shift; economic
conditions. Refers to the sum of money offered for lending and demanded by consumers
and investors during a given period. The interest rate model is determined by the
interaction between potential borrowers and potential savers. According to the loanable
funds theory, economic agents seek to make the best use of the resources available to them
over their life time. One way of increasing future real income might be to borrow funds
now in order to take advantage of investment opportunities in the economy. This will only
work if the rate of return available from the investment were greater than the cost of
borrowing. These borrowers would not be willing to pay higher real rate of interest than the
rate of return available to capital. Savers are willing to save and lend only if there is a
promise of real return on their savings that will allow them to consume more in future than
 6

they would otherwise be able to do. The extent to which people are willing to postpone
consumption depends upon their time preferences (Saunders and Cornet,
2011)

Keynes Liquidity Preference Theory of Interest Rate

According to the theory investors will always prefer short term securities to long term
securities. In uncertain world, then saving and investment may be much influenced by
expectations and exogenous shocks than by the underlying real forces
Keynes (1973), defined liquidity preference theory as the rate of interest set forth in the
general theory of employment, interest and money. The rate of interest depends on the
present supply of money and the demand schedule for the present claim on money in terms
of a deferred claim. Says that,” The rate of interest depends on the demand and supply of
money “(Keynes 1937, 1973).

Keynes advocates government ‘monetary policy directed at influencing the rate of interest
“He, however believes that the other factors that influence the investment demand schedule
are too powerful for such “monetary policy” alone to achieve levels of investment
sufficient to maintain full employment. There is a well-recognized relationship between
investment demand and interest rates. According to classical theory interest rates
sensitively adjust to allocate all available funds for investment purposes.

Classical Theory of Interest Rate

One of the oldest theories concerning; the determinants of pure or risk free rate. It was
developed during the nineteenth and the twentieth centuries by a number of British
economists and elaborated by the Irving Fisher (1930). It argues that the interest rate is
determined by two forces; the supply of savings determined mainly from the household,
demand for investment and capital mainly from the business sector. Classical theories
consider the payment of interest rate a reward for waiting the postponement of the current
consumption in favour of greater consumption. Higher interest rate increase the
attractiveness of the savings relative to consumption spending encouraging more
individuals to substitute current savings for some quantity of current consumption. This so
called the substitution effect calls for positive relationship between interest rate and the
volume of savings.
 7

Empirical Review

Review of Nepalese Literature

Gurung (2004) stated securities market plays a pivotal role in mobilizing savings and
channeling them in productive purposes and many more like providing liquidity on
securities so that one can minimize the risk and maximize the returns. The study on the
securities market performance reveals that there is no synchronization among different
securities market performance indicators, but it is true that they almost have depicted an
erratic trend during the observed period. This indicates the unstable and poor performance
of securities market. Relative to the overall economy, the size of securities market is very
small and the liquidity of securities also is poor. These facts suggest that the Nepalese
capital market now is passing through a bearish situation. The growth and performance of
Nepalese securities market, even after the introduction of new mechanism in 1993/94, are
not satisfactory though it is improving gradually.

Regmi (2012) mentioned stock market in Nepal promoted economic growth of the
Nepalese economy. Since stock market is a vehicle for economic growth in context, the
stock market should be integrated into the whole economic system of the country while
designing economic policies. Hence, meaningful efforts are required on the part of the
government to ensure well-organized and competent operation of stock market because the
more efficient the market, the more possibility it will attract investors. The government
should remove impediments to stock market development in the form of tax, legal and
regulatory barriers because they are sometimes disincentives to investment, should invest
more and develop the nation’s infrastructure in order to create an enabling environment for
businesses to grow, increase the productivity and efficiency, and the rate of returns of
firms, should employ appropriate trade policies that promote the inflow of international
capital and foreign investment so as to enhance the production capacity of the nation, and
should strengthen the capacity of the Nepal Stock Exchange so as to check and prevent
sharp practices by market operators in order to safeguard the interest of shareholders.
Moreover, the Nepal Stock Exchange should improve the trading system in order to
increase the ease with which investors can purchase and sell shares, thus guaranteeing
liquidity on the stock market. Besides, stock market reformation policies may give a further
support to the economy and may act as a key enabler and catalyst of economic growth.
 8

Effect of interest rate in stock market; Where will the market go in future? Universally
there is an inverse relationship between interest rate and stock price. The connection goes
like this- When interest rates fall, fixed income investment like bank deposit become less
competitive because of their lower yields and stocks become more attractive as a result.
Conversely, when interest rate rise, fixed income investment become more competitive
because of its higher yields, therefore stocks become less attractive in turn. No doubt
Interest rate and NEPSE index is interrelated with each other. In the above mentioned
graph from the year 2013 to 2016, every time when interest rate rises, NEPSE has moved
in an opposite direction. In Nepalese context, interest rate and NEPSE are inversely related.
When BFIs’ offer higher interest rate, people go for a safer alternative i.e. fixed deposits. In
recent time, most of the banks are offering attractive interest rate on fixed deposit than few
months back which signals liquidity shortage in the market. When interest rate rises there is
dual effect which can affect stock market negatively. One is risk-averter investors exists
market and move for safer investment – fixed deposit and trader or speculator who are
using bank money for investment also tries to exit market since bank now charges higher
interest rate on loan. Rational Investors always compare the company return with bank
return- fixed deposit rate. Investor cannot assume that increasing interest rate in recent time
will lead to complete downward trend or crash in NEPSE. We should first determine the
longevity of interest rate- is it for long term or for short duration of time? If the interest rate
increment is only for short period of time there is no any strong evidence for market to
decline. Present scenario of Nepalese stock market is completely different from the past.
There is higher involvement of retails investors at present. The influence of big investors
which we felt in past has significantly decreased as market capitalization has drastically
increased.

Reform activities such as evolution of central depository system, dematerialization of

shares, supportive rules and regulations, shorter settlement time are some positive aspects
of this market. Paper based share transactions is being completely replaced by the help of
Central Depository System and dematerialization of shares. The dematerialization of shares
has also been successfully implemented which has shortened the settlement time. We are
also heading towards online trading system in near future. Investment of institutional
investors like insurance companies, mutual fund, private equity fund etc in the stock
market has also provided some strength in market.
 9

Mutual funds, insurance companies, BFIs’, investment companies are some of the
institutional investors for our stock market. There are 3 mutual funds which are set to
launch in near future. Mutual Funds, generally invest around majority of the collected
money directly in the stock market So many companies are issuing right shares and Further
Public Offerings (FPO) in the market at present. Initial Public Offering (IPO), FPO, And
Right issue adjustment is one of the causes of declining market. Every year market declines
in between Dashain and Tihar festival as investors need more liquid cash on hand for
festive purpose. Minor correction is normal in this period of the year. This period of time is
also taken as ‘Wait and Watch’ period Positive things such as investment of NRN’s, online
trading, issuance of broker license to commercial banks , increased number of mutual
funds, accessibility of brokerage facility outside valley, settlement of transactions within a
day in near future can provide new dimension to Nepalese stock market.

The study reveals that average market price of share is Rs. 1001.9.The average earnings per
is Rs. 35.92. Likewise, the average dividend per share is Rs.25.52. The study also reveals
that the average Price earnings ratio, book value per share, ROA and size are 26.53 percent,
Rs.210.11, 1.59 percent Rs. 1408.1billion respectively. Similarly, the average
macroeconomic variables such as GDP, inflation and money supply are 4.32 percent, 7.87
percent and Rs. 17.83 billion respectively. The Variables like earning per share, price
earnings ratio, book value per share and return on assets are very weak effect in
determining market price per share. The implication of this study suggests a rational
investor’s need to consider dividend per share, firm size and money supply before making
investment decision along with signaling and asymmetric information in context of
imperfect stock market like Nepal.

Research Methodology

This chapter puts lights on the research process and methods design to meet the stated
objectives of the study. The research methodology explores the research process regarding
the impact of interest rate on share market of Nepal. The broad process of research
methodology has been further categorized for simplicity into various subtopics which
consists of research plan and design, description of the sample, instrumentation, data
collection procedure and time frame, method of data analysis, analysis plan and limitation
 10

of the study. Since the study is undertaken basically to analyze the impact of interest rate
on share market of Nepal.

Research Design

Research plan and design is a process to conduct the research, which help to identify the
relationship between the dependent and independent variables. It is a master plan
specifying the methods and procedures for collecting and analyzing the required
information. Research design helps to explore the effect of one variable on another
variable.

The quantitative approach is done through descriptive and analytical research design.
Under the descriptive, it has selected the different years to find out the relationship between
interest and share prices. The researcher observed trend analysis of NEPSE index along
with different interest rate like: bank rate, deposit rate, lending rate, short term interest rate.

Data Collection Procedure

This study is based on secondary data. The basic data have been gathered from the
authorized sources namely, Nepal Rastra Bank, Nepal stock exchange, economic survey,
e.t.c. In addition to these, different published articles, report, book, journal, and graduate
research project are also analyzed.

Population and Sample

For this research project, population is based on NEPSE index and different interest rate
like: bank rate, deposit rate, lending rate, short term interest rate. In order to take sample
for the study, study has included different interest rate like: bank rate, deposit rate, lending
rate, short term interest rate & NEPSE closing price of each fiscal years starting from 2024
of commercial banks, development banks, finance companies, insurance companies,
manufacturing and processing, hotels, trading, hydropower, others. This table shows the list
of companies and Market capitalization of Nepal Stock Exchange, these are the data from
2024:
Table: Listing sectors of NEPSE

Particulars No. of listed

Market Share %
 11

company (2024) capitalization(NPR)million

Commercial Banks 26 1513050 37.7

Development Banks 17 168377 4.2

Finance Companies 23 84413 2.1

Insurance Companies 28 614734 15.3

Microfinance 49 382308 9.5

Manufacturing & 19 147672 3.7

Processing

Hotel 5 61414 1.5

Trading 4 21671 0.5

Hydropower 40 337024 8.4

Investment 5 323778 8.1

Others 3 356517 8.9

Total 219 4010958 100

Source:- Nepsealpha

Data Analyzing Tools

It is necessary to follow certain steps and procedures in analyzing data in order to

understand the results and generalize the findings. The analysis of secondary data intends
to study the relationship and cause and effect between the variables. This section is divided
into various subsections first of which deals with the descriptive statistics of the sample
observations including the mean, standard deviation, minimum and maximum values of the
observations. Correlation analyses have been carried out in the second section followed by
the stepwise regression analysis. Test of significance, standard error of estimate and multi-
co linearity have also been tested to make the results more valid.

The main purpose of data analysis of this study is to explore impact of interest rate on share
market of Nepal. This study includes the quantitative data which are analyzed through the
descriptive, co-relation and regression methods. Excel has been used to analyze the data
 12

and to get required information and results. This sections deals with statistical models for
analyzing of secondary data.

Stock price = a+b1BR+b2DIR+b3LIR+b4TIR+e

i.e Stock Price (NEPSE Index) = f (Bank rate, Weighted Average Deposit Interest rate,
Weighted Average Lending Interest rate, Weighted Average T-bills Interest rate)

NEPSE Index include the closing price of mid July of every fiscal year, similarly all
independent variables are also the closing interest rate of every fiscal year. Weighted
Average Deposit Interest rate and Weighted Average Lending Interest rate are the average
of all commercial banks deposit and lending interest rates. Weighted Average T-bills
Interest rate is the average of 28 days, 91 days, 182 days and 364 days of Treasury bills
interest rate.

Statistical Tools

Statistical tools are the measures or the instruments to analyze the collected data from
different sources. In statistics, there are numerous statistical tools to analyze data of various
natures. In this study, the researcher has used the following statistical tools to analyze the
data.

1. Mean (X̅ )

Among different measures of central location, the best known and the most widely used is
the arithmetic mean, or simply the mean. It is the sum of the values divided by their
number. It can be calculated for any set of numerical data, so it is always exists.
The mean can be expressed symbolically as,

̅X= ΣX /N

∑ X= sum of the variables of X

N= No. Of observations
 13

X̅ = Mean

2. Standard Deviation (σ)

The standard deviation (σ) measures the absolute description. It is defined as positive
square root of the mean of the square of the deviations taken from the arithmetic mean. If
the standard deviation is greater, the magnitude of the deviations also is greater. A small
standard deviation means a higher degree of true/ fact and vice-versa.
This can be symbolically as:

σ = √(∑(x−¯x)2 /n

Where, σ = Standard deviations

n = number of observations
X̅ = Arithmetic mean

3. Coefficient of Variation (C.V.)

Coefficient of variation (C.V.) is a relative measure of dispersion, which can be obtained

by expressing the standard deviation as a percentage of mean. The CV is applicable for the
comparison of variability’s of two or more distributions. It is relative measure and is
independent of units. The greater the value of CV, the higher the variability and the smaller
the value of CV, the lower will be the variability. This is given by:

Coefficient of Variation (C.V.) = σ/ ̅X

Where,
CV= Coefficient of Variation
σ = Standard deviations
X̅ = Arithmetic mean

4. Bivariate Correlation Analysis

The bivariate correlation analysis is used to assess the relationship between two variables.
Pearson correlation is a bivariate measure of association (strength) of the relationship
between two variables. Correlation coefficients, r, vary from 0 (no relationship) to 1
(perfect linear relationship) or -1 (perfect negative linear relationship). Positive
 14

coefficients indicate a direct relationship, indicating that as one variable increases, the other
variable also increases. Zero correlation coefficients indicate that there is no relationship
between the two variables. Negative correlation coefficients indicate an indirect
relationship, indicating that as one variable increases, the other variable decreases.

r= n∑XY-∑X∑Y
√[n ∑X 2 – (∑X) 2][ n∑Y 2 (∑Y)2

5. Regression Analysis

Regression analysis is the development of the statistical model that can be used to predict
the values of the dependent variable based upon the values of at least one independent
variable. Regression analysis helps us to know the relative movement in the variables.

Simple regression analysis

The simple regression equation of Y on X, which is used to describe the variation in the
value of Y of given change in the value of X.

Y = a + bx

Where,
Y = dependent variable on X

X= independent variable
a=Regression constant
b=Regression coefficient

Multiple Regression Analysis

Multiple regression is an extension of simple linear regression. It is used when we want to

predict the value of a variable based on the value of two or more other variables. The
variable we want to predict is called the dependent variable (or sometimes, the outcome,
target or criterion variable). The variables we are using to predict the value of the
dependent variable are called the independent variables (or sometimes, the predictor,
explanatory or regression variables).
 15

Multiple regressions also allow you to determine the overall fit (variance explained) of the
model and the relative contribution of each of the predictors to the total variance explained.
For example, you might want to know how much of the variation in exam performance can
be explained by revision time, test anxiety, lecture attendance and gender "as a whole", but
also the "relative contribution" of each independent variable in explaining the variance.

Stock Price (NEPSE Index) = (Bank rate, Weighted Average Deposit Interest rate, Weigh
ted Average Lending Interest rate, Weighted Average T-bills Interest rate)

i.e. stock price = a+b1BR+b2DIR+b3LIR+b4TIR+e

Limitations of the Study

The limitations of the study are:

 The deposit and lending interest rate are used from the commercial banks of Nepal.
It does not include interest rate of other financial institutions like development
banks and finance companies.
 The model used in this study is limited on regression.
 This study has used closing price of shares of every fiscal year.
There are other interest variables such as; government securities like development bonds
rate, inter-bank rate and other macro and non macro economic variables are not used in this
report

Organization of the Study

This project report is prepared for the partial fulfillment of the requirements for the degree
of bachelor of business administration. In this report, whole chapter is classified into three
parts:-

Chapter-I: introduction section indicates context of the study, statement of the problem,
objectives of the study, significance of the study, literature survey, research methodology,
limitations of the study and organization of the study.

Chapter-II: Data presentation and analysis section includes organization profile, data
analysis, and the major findings of the study.
 16

Chapter- III: Conclusion and action implications.

CHAPTER- II

DATA PRESENTATION AND ANALYSIS

This chapter deals with the interpretation, analysis and presentation of secondary data to
deal with different interest rates and their impact on share prices. Various statistical models
described in chapter one have been used for this purpose. This chapter is divided into three
sections. Excel is used for the data analysis to examine the relationship between interest
rate and stock prices.

Organization profile

Variables Define

Bank Rate

Bank rate, also referred to as the discount rate which is the rate of interest which a central
bank charges on its loans and advances to a commercial bank. The bank rate is known by a
number of different terms depending on the country, and has changed over time in some
countries as the mechanisms used to manage the rate have changed. Whenever a bank has a
shortage of funds, they can typically borrow from the central bank based on the monetary
policy of the country.

The interest rate that is charged by a country's central or federal bank on loans and
advances controls the money supply in the economy and the banking sector. This is
typically done on a quarterly basis to control inflation and to stabilize the country’s
exchange rates For instance, stock markets prices tend to react to unexpected interest rate
changes. A change in bank rates affects customers as it influences prime interest rates for
personal loans.
 17

Deposit interest rate

It is paid by financial institutions to deposit account holders. Deposit accounts include

certificates of deposit, savings accounts and self-directed deposit retirement accounts.
Deposit accounts are attractive places to park cash for investors who want a safe vehicle for
maintaining their principle, earning a small amount of fixed interest and taking advantage
of insurance.

Financial institutions encourage long-term deposits not only for the client’s benefit from
the extended interest that is garnered, but because it offers more liquidity to the institution.
By having more cash on deposit, an institution can make more lending services such as
loans and credit cards available to its customers.

Lending interest Rate

Lending Interest rate is one of the important terms in the lending decision process of
commercial banks. Commercial banks are independent business entities that set their own
lending rates. The lending interest rate is the percentage of the loan amount that the lender
charges to lend money. When banks lend money to customers, interest is charged on it for a
number of reasons, including value preservation, compensation for risk, and profits among
others.

Commercial banks can increase their profit margins through higher lending rates and lower
deposit rates. Banks do not charge loan rates that are too low because the revenue from the
interest income will not be enough to cover the cost of deposits, general expenses and the
loss of revenue from non-performing loan portfolio. Moreover, the loanable funds theory
considers the rate of interest as the function of four variables: savings, investment, the
desire to hoard money and supply of money. Rational expectation theory posits that the
best estimation for future interest rates is the current spot rate and that changes in interest
rates are primarily due to unexpected information and or changes in economic factors.

Short term interest rate

If the required return rises, the stock price will fall, and vice versa. This makes sense: if
nothing else changes, the price needs to be lower for the investor to have the required
 18

return. There is an inverse relationship between required return and the stock price
investors assign to a stock.

The required return might rise if the risk premium or the risk-free rate increases. For
instance, the risk premium might go up for a company if one of its top managers resigns or
if the company suddenly decides to lower its dividend payments. And the risk-free rate will
increase if interest rates rise.

So, changes in interest rates impact the theoretical value of companies and their shares:
basically, a share's fair value is its projected future cash flows discounted to the present
using the investor's required rate of return. If interest rates fall and everything else is held
constant, share value should rise.

Stock Price

According to financial theory, a stock's value proposition starts there: stocks are risky
assets, even riskier than bonds because bondholders are paid their capital before
stockholders in the event of bankruptcy. Therefore, investors require a higher return for
taking on extra risk by investing in stocks instead of Treasury notes, which are guaranteed
to pay a certain return.

The extra return that investors can theoretically expect from stocks is referred to as the
"risk premium". Historically, the risk premium runs at around 7%. This means that if the
risk-free rate (the Treasury note rate) is 4%, then investors would demand a return of 11%
from a stock. Therefore, the total return on a stock is the sum of two parts: the risk-free rate
and the risk premium. If we want higher returns, we must invest in riskier stocks because
they offer a higher risk premium than, say, stronger blue chip companies. In theory,
rational investors will select an investment with a return that is high enough to compensate
for the lost opportunity of earning interest from the guaranteed Treasury note and for taking
on additional risk.

Data presentation

Data are collected from government authorizes. Different interest rate like: bank rate,
deposit rate, lending rate & government securities interest rate are tabulated and presented
 19

through line charts. Similarly, closing prices NEPSE of each fiscal year are tabulated and
presenting through trend line charts.

NEPSE (share prices) index is dependent variable, which is obtained from official websites
of Nepal Stock Exchange. Theses closing prices are from each fiscal year of Mid July of
each year from 2016 A.D to 2024 A.D. Similarly we have different interest rate available
from different government authorities. Weighted average deposit interest rate and lending
interest rate are based on commercial banks.
Table No:Different interest rate and NEPSE closing index

This table shows the time series data of different interest rate and NEPSE index from 2016
A.D to 2024 A.D.

W.A Deposit W.A Bank T-bills

Year NEPSE Index Rate Lending Rate rate
Rate
2016 1764.13 3.28 8.86 7 0.27
2017 1606.82 6.15 11.33 7 0.6
2018 1201.48 6.49 12.47 8 3.74
2019 1215.22 6.77 12.08 7 4.67
2020 1297.66 6.01 10.11 7 1.27
2021 2987.72 4.72 8.43 6 4.55
2022 2417.50 7.34 11.54 7 10.66
2023 2087.73 7.86 12.30 7.5 6.35
2024 2108.34 7.01 11.08 7 3.37
Source:- www.nrb.org.np & nepsealpha.com

Bank rate is the interest rate provide by the Nepal Rastra bank to the commercial banks.
Similarly treasury bills, development bonds. These government securities are issued by the
NRB as per to meet the financial requirement and control of money flow in the market.
Therefore, interest rate are varies in different years due to different monetary policy
adopted by NRB.

Weighted Average Deposit Interest rate

Weighted average deposit interest rate is the interest rate provided by commercial banks. It
includes the sum of all fixed deposit and saving interest rate of commercial banks.
 20

W.A Deposit Rate

9
7.86
8 7.34
7.01
7 6.49 6.77
6.15 6.01
6
deposit rate

4.72
5
W.A Deposit
4 3.28
3
2
1
0
2016 2017 2018 2019 2020 2021 2022 2023 2024
years

Figure: Structure of Weighted Average Deposit Interest rate

From figure , Commercial banks have provided lowest interest rate of 3.28% in 2016 A.D.
Similarly banks have provided highest interest rate of 7.86% in 2023 A.D.

Weighted Average Lending Interest rate

Weighted average lending interest rate is the interest rate provided by commercial banks. It
includes the sum of all lending interest rate of commercial banks.
 21

W.A Lending Rate

14
12.47 12.08 12.3
12 11.33 11.54
11.08
10.11
10 8.86
8.43
lending rate

8
W.A Lendding Rate
6

0
2016 2017 2018 2019 2020 2021 2022 2023 2024
years

Figure: Structure of Weighted Average Lending rate

From figure, Commercial banks have provided lowest interest rate of 8.43% in 2021 A.D.
Similarly banks have provided highest interest rate of 12.47% in 2018 A.D.

Bank Rate

Bank Rate
9
8
8 7.5
7 7 7 7 7 7
7 6.66

5 Bank Rate

0
2016 2017 2018 2019 2020 2021 2022 2023 2024

Figure : Structure of Bank rate

 22

Bank rate is the interest rate provided by Nepal Rastra Bank to the commercial banks in
order to borrowing fund from NRB. Interest rate provided by commercial banks to their
customers is also determined by bank rate.

From figure, the highest interest provided by NRB is 8% in 2018 A.D. Similarly NRB has
provided lowest interest rate of 6.66% in 2021 A.D

Treasury Bills rate

Nepal government issue treasury bills with the help of NRB to meet the short term financial
deficit as well as to control money supply to the market. Generally Treasury bills of 28
days, 91 days, 182 days and 364 days issued by NRB. We have presented the weighted
average Treasury bill interest rate of four different treasury bills at this report.

Weighted Average T-bills Interest rate is the average of 28 days, 91 days, 182 days and 364
days of Treasury bills interest rate.

T-Bills Rate
12
10.66
10

8
6.35
t - bill rate

6 T-Bills Rate
4.67 4.55
3.74 3.37
4

2 1.27
0.27 0.6
0
2016 2017 2018 2019 2020 2021 2022 2023 2024
years

Figure: Structure of Weighted Average T-bills rate

In the figure, NRB has provided the highest interest rate of Treasury bill of 10.66% in 2022
A.D. Similarly, NRB has provided lowest interest rate of Treasury bill of 0.27% in 2016
A.D
 23

NEPSE Index

The numbers of companies listed in Nepal stock Exchange are 254 numbers. These
companies are categorized in to 9 sectors. These are Commercial Banks, Development
Bank, Finance Companies, Insurance Companies, Hotel, Hydropower Companies, Trading
Companies, investment companies, Manufacturing & processing Companies and others
categories. Nepal Stock Exchange at the end of the day published the transaction index
which is called Nepse Index.

NEPSE Index
3500
2987.72
3000
2417.5
2500
2087.73 2108.34
index value

2000 1764.13
1606.82
1500 1201.48 1215.22 1297.66
1000

500

0
2016 2017 2018 2019 2020 2021 2022 2023 2024
years

Figure: Structure of NEPSE Index

From figure, the NEPSE index has lowest point of 1201.48 at 2018 A.D. Similarly, there is
highest point of 2987.72 at 2021 A.D. The NEPSE index is in increasing ratio, with
increasing number of listed companies. With the rise in credit growth, the stock market also
took a leap. There was an increase in margin lending too in the portfolio of banks. When
prices of bank shares went up, the stock market gained points and reached peak in 2021
A.D. But as credit growth slowed and real estate market started cooling down, banks
struggled because of their investments in real estate sector. The share prices also came
crashing down after a steep climb. The overvalued stocks fell to their real value.
 24

Listed Companies and Market Capitalization

From fiscal year closing of 2022/23, the list of companies in NEPSE index is of 254.
Similarly total share value of market capitalization is Rs 18 million. The largest market
capitalization is occupied by financial institutions. Among the financial institution,
commercial banks have occupied share value of Rs 0.9 million in market capitalization.
Similarly, development banks have occupied of Rs 0.2 million in market capitalization.
Finance and Insurance companies have occupied Rs 0.05 million and Rs 0.2 million
respectively. In the same way, manufacturing, hotel, trading, hydropower and others have
occupied the market by few share value in Nepal stock Exchange respectively.

Table No: Descriptive analysis of study variables

W.A Deposit W.A Lending Bank T-bills

Nepse Index rate
Rate Rate Rate
Mean 1854.07 6.181 10.911 7.055 3.942
Median 1764.13 6.49 11.33 7 3.74
S.D 605.669 1.408 1.472 0.527 3.24
Kurtosis -0.178 1.263 -0.708 2.635 1.329
Skewness 0.679 -1.176 -0.808 -0.271 0.999
Minimum 1201.48 3.28 8.43 6 0.27
Maximum 2987.72 7.86 12.47 8 10.66
Count 9 9 9 9 9
Source:- excel

From the table, the mean and median value of NEPSE index is 1854.07 and 1764.13
respectively which lies between 1764.13 and 2108.34 points. Similarly, Standard deviation
is of 605.669 points. Deposit interest rate has the mean and median value of 6.181% &
6.49% respectively; these rates are lies between 3.28% and 7.86%. Similarly, Standard
deviation is of 1.408%.

Similarly, Lending interest rate has the mean and median value of 10.911% & 11.33%
respectively; these rates are lies between 8.43% and 12.47%. Similarly, Standard deviation
 25

is of 1.472%. Bank rate has the mean and median value of 7.055% & 7% respectively;
these rates are lies between 6% and 8%. Similarly, Standard deviation is of 0.527%.

T-bills interest rate has the mean and median value of 3.942% & 3.74% , this rates is lies
between 0.27% and 10.66%. Similarly, Standard deviation is of 3.24%.

Data in the above table shows that NEPSE index is highly skewed to the positive where as
other variables data are moderately skewed to the positive except Lending interest rate
variable. Similarly, variables like NEPSE index, Lending indicate the peaked distribution
and other variables like: Deposit interest rate, bank rate and T-bills rate indicate the flat
distribution according kurtosis analysis.

Table No:Correlation Analysis

The correlation coefficients show the magnitude and direction of the linear relationship
between two variables if that of the original data should change or remain unchanged.
Table: Correlation output

(This table is the outcome of the Correlation analysis carried out from excel, it has correlate
with each dependent and independent variables to check the inter relationship between
variables like NEPSE Index, average deposit interest rate, average lending interest rate,
average Treasury bills, bank rate)

Table No: Bivariate Correlation Analysis

NEPSE W.A W.A T-bills
Bank Rate Rate
Index Deposit Rate Lending Rate
NEPSE Index 1
W.A
-0.09001 1
Deposit Rate
W.A
-0.46671 0.84836 1
Lending Rate
Bank Rate -0.65371 0.43937 0.76292 1
T-bills rate 0.45876 0.60380 0.38726 0.02883 1
** Correlation is significant at the 0.05 at two-tailed
 26

According to above table, there is negative relation between weighted average deposit
interest rate and NEPSE Index which indicate that the higher deposit interest rate, lower
would be the NEPSE Index and vice versa. Likewise, there is negative relation between
weighted average lending interest rate and NEPSE Index which indicate that the higher
lending interest rate, lower would be the NEPSE Index and vice versa.

On the other hand, bank rate is positively associated with NEPSE Index which indicates
higher the bank rate higher would be the NEPSE Index and vice versa. Likewise T-bills
rate has negative relation with NEPSE index which indicate that the higher interest rate of
T-bills lower would be the NEPSE index and vice versa.

Observing correlation between independent variables, we can find that bank rate, lending
interest rate and T-bills interest rate are positively associated with Deposit interest rate.
This indicates that the higher bank rate, lending interest rate and T-bills would decrease the
Deposit interest rate and vice versa.

Similarly, there is negative relation between bank rate and lending interest rate. This
indicates that higher bank rate lower would be the lending rate and vice-versa. Similarly,
variables like T-bills has positive relation with Bank rate. This indicates that the high
interest rate of T-bills would increase the bank rate and vice versa.

Regression Analysis

In order to test the statistical significance of the results, this study relies on secondary data
analysis based on the regression model. It basically deals with regression results from
various specifications of the model to examine the estimated relationship of stock price
(NEPSE Index) dependent variable and interest rate as independent variables with
profitability along with stock return. The regression results have been presented in tables
below.

This table is the outcome of regression analysis outcome from the excel, dependent
variable is NEPSE Index where as independent variables are weighted average deposit
interest rate, weighted average lending interest rate, weighted average
Treasury bills, bank rate
 27

Table : Regression Statistics

Regression Statistics

Multiple R 0.86861
R Square 0.75448
Adj. R Sq. 0.50896
Std. Error 424.415
Obs. 9
a. Predictors:(constant) DR, LR, SFTR, STIR

As shown in above table the value of coefficient of multiple determinants R square is

0.755. This implies that the variation in share price can be explained by 75.5% independent
variables (Bank rate, Deposit interest rate, Lending interest rate, short term risk free interest
rate). The chance of error of the estimate is 424.42. In other word, finding of the coefficient
of multiple determination R square shows that 75.5% changes in share price of Nepalese
stock market could be accounted to changes in bank rate, deposit rate, lending rate, short
term risk free interest rate and remaining 24.4% are contributed by other factors. R is the
correlation coefficient which shows the relationship between the study variables, from the
findings shows in the table 2.5 there was a highly significantly positive relationship
between the study variables as shown by 0.8686 a this result is complimented by the
adjusted R- square of about 50.89% which is essence of the proportion of total variance
that is explained by the model. The table below shows the analysis of variance (ANOVA).

Table no: Goodness of fit of Regression (ANOVAa)

ANOVA
Df SS MS F Sig. F
Regression 4 2214170.269 553543 3.07305 0.151236199
Residual 4 720512.5317 180128

Total 8 2934682.801
a. Dependent variable: share price
b. Predictors: constant, BR, DR,LR.STIR

From the ANOVA statics in table above the processed data which is the population
parameters, had a significance level of 15.12 b% which shows that the data is ideal for
 28

making a conclusion on the populations parameters as the value of significance (p-value) is

less than standard 5%.The F value is about 3.07305 and a P-value or F(sig) that is equal to
15.12b% this invariably suggests clearly that simultaneously the explanatory variables are
significantly associated with the dependent variables. That is strongly determine the
behavior of the share price of Nepalese stock market. The regression results for
independent effect of Bank rate, Deposit Rate, Lending rate and short term risk free interest
rate on share price is shown in table below.

Table No:Regression result for independent effect of bank rate, deposit rate, lending rate,
short term risk free interest rate on share price (Coefficienta )

Lower Upper Lower Upper

coefficients Stand.error T stat P-value 95% 95% 95.0% 95.0%
11897.7 11897.7
intercept 5643.175102 2252.7333 2.50503 0.06641 -611.415 6 -611.415 6
W.A.
Deposit rate 185.9174 277.9017 0.669 0.54012 -585.661 957.496 -585.661 957.496
W.A. 544.157 544.157
lending rate -392.0269 337.18820 -1.1626 0.30961 -1328.21 5 -1328.21 5
1405.80 1405.80
Bank rate -153.2311 561.52292 -0.2729 0.79845 -1712.26 6 -1712.26 6
277.689 277.689
T- Bill rate 106.6140 61.616818 1.73027 0.15863 -64.4617 7 -64.4617 7

a. Dependent Variables: Share price

Analyzing above table, first come the adjusted R square; as it is regression of stock market
index and interest rate of nine year of each fiscal year. After test we found that the value of
R Square is 0.50896 which means that 50.896% variation of stock market is determined by
Interest rate variables i.e. by Weighted Average Deposit interest rate, Weighted Average
lending interest rate, Bank rate, T-bills rate. Stock market is being affected by 49.104% by
other variables.

Major Findings and discussions

The value of adjusted R Square is 0.50896 which means that 50.896% variation of stock
market is determined by Interest rate variables i.e. by Weighted Average Deposit interest
rate, Weighted Average lending interest rate, Bank rate, T-bills rate. Stock market is being
affected by 49.104% by other variables.
 29

 Variables like deposit rate, lending rate, T-bills rate have negative relationship with
Share prices (NEPSE Index).
 There is no significant relationship between bank rate and Share prices.
 Lending interest rate and T-bills interest rate are positively associated with Deposit
interest rate.
 T-bills rate is positively associated with lending interest rate.
 There is negative relation between bank rate and lending interest rate.
 T-bills rate has positive relation with Bank rate..
 The result reveals that beta coefficient is positive and significant for weighted
deposit interest rate. But the beta coefficient is negative and significant for
weighted lending interest rate.
 Beta coefficient is negative and insignificant for bank rate. Similarly, beta
coefficient is negative and significant for weighted T-bills interest rate.

CHAPTER-III

CONCLUSION

This chapter presents the brief summary of the entire study and highlights of major
findings of the study. In addition, the major conclusions are discussed in separate section of
this chapter which is followed by some implications and the recommendations regarding
the impact of interest rate on share market of Nepal.
 30

Conclusion and Discussion

The major conclusion of this study is that deposit rate, lending rate, T-bills rate have
significant impact on Share prices (NEPSE Index). The value of adjusted R Square is
0.50896 which means that 50.896% variation of stock market is determined by Interest rate
variables i.e. by Weighted Average Deposit interest rate, Weighted Average lending
interest rate, Bank rate, T-bills rate. Stock market is being affected by 49.104% by other
variables. Similarly, correlation analysis shows that Variables like deposit rate, lending
rate, T-bills rate have negative relationship with Share prices (NEPSE Index). There is no
significant relationship between bank rate and Share prices. Lending interest rate and T-
bills interest rate are positively associated with Deposit interest rate. T-bills rate has
positively associated with lending interest rate. There is negative relation between bank
rate and lending interest rate.

Finally, the study concludes that deposit rate, lending rate, T-bills rate have significant
negative impact on Share prices (NEPSE Index). But there is no impact of bank rate on
share price.

This study has investigated these implications in the context of our country to see whether
the results support the previous studies or not. There is no significant relationship between
bank rate and Share prices. Lending interest rate and T-bills interest rate are positively
associated with Deposit interest rate. T-bills rate is positively associated with lending
interest rate. There is negative relation between bank rate and lending interest rate. T-bills
rate has positive relation with Bank rate. The result reveals that beta coefficient is positive
and significant for weighted deposit interest rate. But the beta coefficient is negative and
significant for weighted lending interest rate.

Implementations

This research is useful for different stakeholders such as investor, regulatory bodies, etc.
Deposit rates and lending rate affects the share price which can be fruitful for investor.
Regulatory bodies like NRB issues T-bills by analyzing interest rate.
The NRB should plan the monetary policy 2023/24 carefully to boost up the share market.
 31

 The study observed a negative relationship of interest rate with share prices.
Hence, policy makers should consider the fluctuation of interest rate and should
use the effective tool to control the money market.
 The NRB should use the government securities like development bonds, foreign
saving bonds e.t.c. to solve the liquidity problem.
 The government and policy makers should make the policy to increase the
confidence level of investors and shareholder.
 There should be financial stability and transparency.
 Government’s inability to spend capital expenditure and huge revenue collection
has affected the liquidity status of the banks. Government should focus on it.

Scope for the future research

The study examined the impact of interest rate on share market of Nepal. The study has
produced some interesting facts and findings. Future researcher can use this research as
guidelines for their future studies because there is a gap in this research such as:

 The deposit and lending interest rate are used from the commercial banks of Nepal.
Thus, the future study may include interest rate of other financial institutions like
development banks and finance companies to investigate impact of interest rate on
share market of Nepal.
This study has used closing price of shares of every fiscal year. Annual closing prices
and stock indexes are suffered from high deviations and thus increase the annual
returns. Therefore, future studies should be directed towards computing returns from
daily or weekly or monthly observations of closing prices.

 There are other interest variables such as; government securities like development
bonds rate, inter-bank rate, which shows the study is insufficient in itself. Thus, the
future study can include these variables that will further filter their study and make
time worthy.
 This study is based only on secondary data and does not include the preference of
different investors. Therefore, future studies can be conducted using primary data.
 32

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APPENDIX

Treasury bill rates from 2008 to 2022

T-bills* (28 days) T-bills* (91 days) T-bills* (182 T-bills* (364 days)
days)
3.26 2.98 4.93
1.82 1.47 3.81
1.57 3.94 4.42 4.79
2.40 3.25 3.86 4.04
2.13 2.77 3.51 4.00
5.16 5.13 5.16 6.47
4.94 6.80 5.91 6.55
8.70 8.13 8.28 7.28
8.08 8.52 8.59 8.61
0.10 1.15 1.96 2.72
0.55 1.19 1.60 2.71
0.01 0.02 0.42 0.72
0.1739 0.5648 0.7579
0.05 0.33 0.72
0.71 1.71
Source: www.nrb.org.np
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