Impact of Interest rate and Inflation Rate on NEPSE Index

Abstract

Stock index, inflation rate and interest rate are three crucial factors of economic growth of a country. Stock Price is affected by various factors of the long as well as short run. Two of the most important factors affecting the index of the stock are the inflation rate prevailing in the market and the interest rate of a bank or financial institutions. This study aims to find out the positive or negative impact or the relationship between the stock index and inflation as well as the stock index and interest rate of Nepal. This study aims to examine the factors that influence the NEPSE Index. In the study, two variables are taken as independent variable: interest rate and inflation rate. NEPSE index is taken as dependent variable. Interest rates are divided into three parts, saving interest rate, fixed interest rate and lending interest rate. Data collection is done with the help of different websites of NRB, NEPSE and others. The research design embraced in the study consists of descriptive and causal research design. Various tools used for data analysis were mean, median, standard deviation, correlation and regression analysis etc. The findings revealed that saving interest rate, fixed interest rate, lending interest has significant negative relationship with NEPSE Index however inflation has an insignificant relationship with the NEPSE index. Interest rate and inflation rate were not only the factors that affects stock index. There is large role of news, rumors, insider trading, cornering, politics and speculation that influence the stock index. These types of variables are hard to be quantified and applied in the model.

Keywords: NEPSE index, inflation rate, saving interest rate, fixed interest rate, lending interest rate.