Nepal, Feb. 6 -- Banks and financial institutions (BFIs) lowered interest rates on both loans and deposits over the past year as weak economic activity and excess liquidity constrained business growth.

According to records maintained by Nepal Rastra Bank (NRB), the average lending rate of BFIs fell by 1.57 percentage points as of mid-January this year compared to the same period of the previous fiscal year. Over the same period, the average deposit rate declined by 1.19 percentage points, indicating a sharper fall in lending rates than in deposit rates.

An NRB official said the significant reduction in lending rates was largely driven by the interest rate corridor framework enforced by the central bank. To narrow the gap between the up...