Rupee dips to 10-month low of 100.04

KATHMANDU:

Nepali currency once again breached the 100-rupee mark against the US dollar to hit the lowest in almost 10 months, as the value of India rupee, with which the domestic currency is pegged, slipped today.

Nepali rupee, which was sold at Rs 99.54 per USD by Nepal Rastra Bank today, will open at Rs 100.04 for trading tomorrow. The currency was last traded at this level on February 14.

Nepali currency’s value against the US dollar is fixed on the basis of Indian currency’s exchange rate vis-a-vis the greenback because Nepali rupee is pegged with INR at Rs 1.6. And since the Indian currency lost ground and fell to INR 62.36 today, Nepali currency followed suit.

Indian currency has lately been weakening because of demand for dollars made by oil importers, who are taking advantage of lower crude oil prices, Indian media said.

The Indian rupee has weakened 0.87 per cent against the dollar since the beginning of this year, according to LiveMint.

Also, foreign institutional investors sold shares worth INR 2.21 billion on Tuesday, creating pressure on the Indian currency, and subsequently on Nepali rupee.

One of the demerits of weak currency is that it makes imports expensive. This is because importers have to hand over more Nepali currency while purchasing goods priced in US dollars. Since Nepal imports almost every good that it consumes, the currency depreciation is likely to build inflationary pressure.

But, ironically, this is where the opportunity also lies.

With the slide in Nepali rupee’s value, entrepreneurs can now set up factories and produce goods that are being imported because a weak currency is disincentive for importers but provides competitive edge to domestic manufacturers. This can eventually reduce the country’s dependency on imports.

A weak currency also tends to boost exports because foreigners who come here to buy goods can get more Nepali rupees for every dollar they exchange. This provides an opportunity to exporters, like those engaged in woollen carpet, pashmina and readymade garment businesses, to produce more and reap benefits.

This will ultimately help the country to narrow down the trade deficit, which stood at Rs 169.72 billion in the first quarter of this fiscal year till October 17 — provided the government is able to address problems related to energy shortage and remove bottlenecks like transport syndicate.

Lastly, a weak currency will hugely benefit remittance receivers, as they will get more Nepali currency while exchanging money sent from abroad.

Source: THT