Rupee dips to 11-month low against US dollar
KATHMANDU, MAY 31 -
The Nepali rupee plunged to an 11-month low on Thursday with the Nepal Rastra Bank ( NRB ) fixing the exchange rate at Rs 90.06 a dollar for Friday.
The devaluation of the Indian currency—with which the Nepali currency is pegged—against the US dollar is the sole factor blamed for the weakening of the Nepali rupee. The Indian rupee hit a 10-month low on Thursday, with heavy dollar demand for defence payments and month-end import demand from oil firms, according to Reuters.
The central bank’s statistics show that the exchange rate was Rs 90.35 per dollar on June 30, 2012. The price of dollar had reached Rs 91.88—an all time high on June 23, 2012. After that, it declined to up to Rs 82.99 on October 6, 2012.
However, the dollar price has again followed an upward trend in the last one month. Over the period, Nepali currency devalued by Rs 3.56. The exchange rate was Rs 86.50 per dollar on May 1.
Economist Madan Kumar Dahal said the price of gold that is inversely related to the dollar price is the reason for the devaluation of the rupee. The gold price has been decreasing in recent days.
Dahal said the slow growth rate observed in the Indian economy could also have hit the domestic currency. “Nepal has been following the pegged system of exchange rate, which solely made us depend on Indian economy for the dollar price,” he said.
“The improvement in macro economic indicators of the US could also be the reason for the strengthening of the dollar.”
The rise in dollar price could have both positive and negative impact on the economy. While import expenses could go up as traders have to pay more rupees for exchange of the dollar, it could result in inflation in developing economies like Nepal that depend mostly on imported raw material and finished goods.
The devaluation of the domestic currency might help exporters as they can register more export earnings. It could further enhance domestic production, along with increasing export. “However, due to the small size of the export basket and poor production efficiency, we may not benefit from the devaluation of the Nepali currency,” said Dahal.
Importers say depreciation of the domestic currency will increase the cost of third-country imports as more domestic currency is required to support the import bills.
Akhil Chapagain, president of Nepal-Turkey Chamber of Commerce, projected the import price to go up by at least 10 percent due to the dollar price rise in the last one month. “It will increase the cost of production for those using imported raw materials,” he said.
The dollar rise 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. Strong dollar is also expected to increase the cost of large projects, a majority of which depend on imported goods.
Source: The Kathmandu Post
