Experts Forecast Price Hike and Shrinkage in Imports As Nepalese Currency Weakens Against the US Dollar

The US dollar exchange rate is at a 17-month high. As the dollar strengthens day by day, the Indian currency has weakened. This has weakened the Nepalese currency since it is pegged to the INR.

Demand for the US dollar has risen sharply in recent times, with most countries keeping reserves as it is considered the safest currency internationally. Experts also say that the US dollar has strengthened against other currencies as the United States has divested from foreign investments during the pandemic and channeled investment to its homeland. Banking expert Anil Raj Bhattarai told Annapurna Post the US dollar has started to strengthen globally as policies in the US are gradually moving towards normalization and interest rates are likely to rise there.

According to Nepal Rastra Bank, the buy rate for 1 USD is Rs. 120.93 today, i.e. Mangsir 26. Meanwhile, the sell rate is Rs. 121.53.

Its direct effect for Nepal is that imports will become more expensive and inflation will come under pressure. If the Nepali currency depreciates gradually, imports are likely to decline. It is estimated that the import of expensive luxury items such as refrigerators, washing machines, and vehicles may decline after the devaluation of the Nepali currency. Nonetheless, the stronger the dollar, the better for remittance senders since it equates to a higher monetary amount when converted to the Nepalese currency. However, when Rs. 7-8 trillion remittances come in, we import Rs. 14-15 trillion worth of imports, hence the strengthening dollar has an overall negative impact on the economy.

Former Executive Director of Nepal Rastra Bank Nara Bahadur Thapa says that the price rise of oil products will increase as the dollar strengthens. According to him, as the government has to pay interest and installments on foreign loans, the government's budgetary expenditure will increase on foreign loans. "There is pressure on the overall price including transport price. Since there is very little indigenous raw material, the cost of production increases when most of the raw material has to be imported. It is likely to increase the cost of the economy as a whole," he said.