Relationship between Cost of Bank Lending and NEPSE Index: Nepal Case

Abstract

The main objective of this study is to examine the impact of the macroeconomic indicators such as interest rate, real GDP, money supply and inflation on Nepal Stock Exchange (NEPSE) Index. This study is an empirical research based on secondary data and used the time series data for the total period of 24 years from fiscal year 1994 to 2018. The results of correlation analysis showed that broad money supply, real GDP and CPI have a statistically significant linear relationship with NEPSE index. However, T-bill rate and NEPSE index have a statistically insignificant linear relationship. Furthermore, the results of regression analysis showed that money supply is significant in predicting NEPSE index of the investors. Interest rate, real GDP and CPI are found to be insignificant in predicting NEPSE index. Similarly, relationship between stock market performance and macroeconomic variables is of pertinent importance to policy makers, regulators, academicians, researchers and investment community.

Keywords: Interest Rate, GDP, Inflation, Money Supply

JEL Classification: E43, P44, E51