Rupee at all-time low of Rs 92.93 a dollar

KATHMANDU, JUN 11 -

The Nepali rupee has hit an all-time low against the US dollar , posting a single-day drop of Rs 1.34. The Nepal Rastra Bank (NRB) has set the exchange rate at Rs 92.93 per dollar for Tuesday.

Earlier, the domestic currency had hit its lowest ebb of Rs 91.88 a dollar on June 23, 2012. The currency then appreciated to Rs 82.99 on October 6, 2012.

In the last 11 months, the dollar has appreciated by almost Rs 10 against the rupee .

The NRB had set the exchange rate at Rs 91.59 per dollar for Monday, but Nepali banks transacted the greenback at Rs 92.65.

The sharp devaluation of the Nepali rupee is due to the fall in the value of the Indian rupee , with which the domestic currency is pegged. According to the Indian media, accelerating sale of debt instruments by foreign institutional investors to benefit from rising yields in the safe US treasury aggravated the fall of the Indian rupee .

Economist Madan Kumar Dahal attributed the devaluation of domestic currency to the recovery of the US economy and slow growth of the Indian economy. Nepali rupee ’s fall is likely to affect inflation in the next fiscal year as imports (from countries other than India) will be dearer. As more Nepali rupee should be spent to purchase dollar , the imports will be expensive.

Rajesh Kaji Shrestha, president of Nepal-China Chamber of Commerce, said the devaluation of the domestic currency is likely to hit foreign imports. “As imported goods become expensive, traders will be discouraged to import,” said Shrestha, adding traders have slashed imports whenever the dollar has soared.

An appreciating dollar has already started to show negative effect. Banks said the number of LC applications have come down.

“Importers have reduced opening “Deferred LC”, in which they settle payment afterwards,” said Himalayan Bank CEO Ashok Rana. He, however, said imports could be marginally hit in the prelude to the government’s budget announcement. “Citing the rise in the import taxes in the budget, imports could be affected marginally by the rising dollar .” The devaluation of the domestic currency helps exports as local goods become relatively cheaper to foreigners. “However, due to the small size of Nepal’s export basket, it not benefit much from the situation,” Shrestha said.

Strong dollar is also expected to raise the government’s cost of debt servicing. The government is required to pay back loans to foreign countries and donors in dollar terms. Besides, the cost of large projects will also increase as a majority of them depend on imported goods.

Remittance inflow has taken an upward momentum due to the depreciation of the Nepali currency. Nepali workers tend to send more remittance when they get higher in rupee terms.

“With an expectation of receiving more domestic currency in exchange, people residing abroad usually send more money to their homes when dollar rises,” said Rana.

Meanwhile, importers are in wait-and-see mode. Rohit Gupta, director at Teletalk, importer of electronic goods, said the rise of the dollar has a long-term impact in the market.

“Most of the traders observe the impact in the domestic market for the next few weeks in order to set their import plan,” Gupta added.

Source: The Kathmandu Post