Shrawan Surge or Slump: How NEPSE Reacts to Nepal's Monetary Policy

Every year, the arrival of Shrawan, the first month of Nepal’s fiscal calendar marks more than just a change in dates. It brings with it one of the most anticipated events in the country’s economic landscape: the release of Nepal Rastra Bank’s (NRB) annual monetary policy. For investors and analysts alike, this moment acts as a bellwether for the financial markets, especially the Nepal Stock Exchange (NEPSE), which often sees sharp movements in response.

Whether it's optimism over relaxed lending rates or anxiety around tighter liquidity controls, NEPSE tends to mirror the mood set by NRB’s policy tone. From speculative rallies to sudden corrections, the market’s reaction in Shrawan has historically offered a glimpse into investor sentiment and broader economic expectations. But does Shrawan truly deliver a surge, or is it more often a slump?

Monetary Policy and Why It Matters for NEPSE

Monetary policy is one of the most powerful tools the central bank uses to steer the economy. In Nepal, this responsibility lies with the Nepal Rastra Bank (NRB), which issues its monetary policy annually after the introduction of Fiscal Policy mostly in Shrawan to outline the central bank’s strategic stance for the new fiscal year. The policy influences the supply of money, interest rates, credit flow, and overall financial stability, all of which directly or indirectly impact the capital market.

For NEPSE, the monetary policy acts as a market-moving event. It sets the tone for the investment climate by signaling whether the central bank is leaning toward growth (expansionary policy) or caution (tightening policy). A more accommodative policy, characterised by reduced interest rates, increased liquidity, or relaxed lending guidelines tends to boost investor confidence, encouraging stock market participation. Conversely, a tightening stance raising interest rates, increasing cash reserve ratios (CRR), or restricting credit growth can cool down speculative behavior and cause corrections in the equity market.

NEPSE’s sensitivity is particularly evident in sectors like banking, insurance, and hydropower, where the impact of interest rates and credit policies is immediate and substantial. For instance, when NRB lowers the policy rate or signals easier liquidity, bank stocks often rally due to expectations of increased lending and profitability. On the other hand, a conservative stance may lead to decreased risk appetite among investors, pulling down market momentum.

In essence, the monetary policy is not just a document, it’s a market signal. It shapes investor behavior, affects portfolio decisions, and defines the broader direction of the stock market for months to come. This is why Shrawan remains one of the most volatile and watched periods for NEPSE traders, as they try to interpret and respond to the monetary roadmap laid out by the central bank.

Historical Trends in NEPSE During Shrawan

A clear way to assess how NEPSE responds to monetary policy is by analyzing its performance during Shrawan, the month when the Nepal Rastra Bank (NRB) typically announces its annual monetary policy. Out of the past 7 fiscal years, the monetary policy was introduced in Shrawan in six of them, making it a pivotal month for investors. However, in Fiscal Year 2075/76, the policy was released slightly earlier on Ashad 27, 2075 just days before Shrawan began.

To examine NEPSE's behavior around these announcements, this study tracked the index levels at the start and end of Shrawan for each of the last seven fiscal years. This helps highlight whether the market tends to respond with a “surge” fueled by optimism, or a “slump” driven by caution.

Analyzing the NEPSE index movement during Shrawan from fiscal year 2075/76 to 2081/82 reveals a mixed pattern of gains and losses, underscoring the market’s volatility during this crucial policy month. In 2075/76, the index dipped marginally by 0.17%, reflecting a stable market with minimal reaction. The following year, 2076/77, saw a more noticeable decline of 2.78%, likely due to cautious investor sentiment ahead of monetary announcements. In 2077/78, NEPSE remained relatively flat with a slight drop of 0.24%, suggesting indecision or a wait-and-watch approach. The market turned sharply bullish in 2078/79, posting a 9.60% gain, driven by favorable liquidity conditions and post-pandemic optimism. In 2079/80, the index rose moderately by 1.55%, hinting at a tentative recovery. However, 2080/81 reversed course with a 3.05% loss amid tightening monetary policy and weakening investor confidence. The most dramatic movement occurred in 2081/82, when NEPSE surged by an impressive 29.87%—a reflection of improved liquidity, strong policy signals, and renewed retail participation. Overall, while NEPSE posted gains in only three of the seven Shrawans, the average return stands at +4.97%, highlighting that positive years often outweigh the declines in magnitude. These fluctuations indicate that Shrawan remains a highly sensitive period for the market, where investor sentiment can swiftly shift in response to monetary policy and economic outlooks.

Conclusion

NEPSE’s performance in Shrawan is more than a seasonal curiosity—it’s a real-time reflection of how the stock market interprets the economic direction set by Nepal Rastra Bank’s monetary policy. The data reveals that while some years usher in bullish rallies and renewed optimism, others trigger cautious pullbacks or stagnation. This pattern shows that Shrawan doesn’t consistently guarantee a surge or a slump, but rather a reaction, shaped by how investors read the central bank’s tone on liquidity, interest rates, and credit flow.

For investors, this underscores the importance of closely analyzing policy statements—not just for what they change, but for the expectations they set. Even subtle shifts in the central bank’s stance can translate into significant market movements, especially in sectors sensitive to monetary tightening or easing. As such, Shrawan is not a month to sit idle; it’s a time to be alert, informed, and responsive.

From a policy perspective, the stock market's volatility around Shrawan serves as a barometer of communication effectiveness and market confidence. Clear, transparent, and forward-looking policies help stabilize expectations and reduce speculative swings, while ambiguous or overly restrictive measures may amplify uncertainty.

Ultimately, whether Shrawan delivers a surge or a slump, one thing is clear: its impact on NEPSE is far from incidental. It reflects the underlying tension—and potential—between policy direction and market psychology. For anyone watching Nepal’s financial landscape, Shrawan remains a month where headlines meet headwinds, and where monetary signals find their loudest echo in the stock market charts.

Article By: Suraj Bidari