Rupee slips to new low of Rs 90.58 a dollar

KATHMANDU, JUN 22

The Nepali rupee plummeted to an all-time low against the US dollar on Thursday as the central bank fixed the exchange rate at Rs 90.58 a dollar for Friday, breaking the previous record of Rs 90.17 a dollar on May 31.

The devaluation of the Indian currency (with which the Nepali currency is pegged) against the US dollar is to blame for the weakening of the Nepali rupee. As the domestic currency is pegged with the Indian rupee, the exchange rate solely depends on the strength of the Indian currency, said the Nepal Rastra Bank (NRB).

As of late afternoon on Thursday, Indian currency was traded at IRs 56.31 per dollar in Indain forex market.

The NRB spokesman Bhaskar Mani Gyawali said the weakening of the Nepali rupee was due to the devaluation of Indian currency against dollar. High demand for the US dollar from the Indian oil importers pushed dollar value up, he said.

In recent days, there has been a significant rise in price of petroleum products in the southern neighbour. “Besides, it could also be the effect of the ongoing eurozone crisis,” said Gyawali.

The slump in the value of domestic currency might create some hope for exporters as they could register more export earnings. However, the cost of the manufacturing of products which mainly depend on the imported raw material will rise.

The appreciation of dollar is also expected to raise the cost of debt servicing by the government. The government is required to pay back loans to foreign countries and other donors in dollar terms. Strong dollar is also expected to increase the cost of large projects, a majority of which depends on imported technology goods.

Other fallouts include increase in inflation as around 33 percent of the total imports are made from third countries. Nepal imported goods worth Rs 261.63 billion from India in the last fiscal year, while it brought in goods worth Rs 133.27 billion from third countries.

However, beneficiaries of migrant workers will receive more remittance in terms of the Nepali rupee.

Rudra Upadhyaya, head at the Central Department of Economics, Tribhuvan University, said the inflation rate could go up with the appreciation of dollar. “Although the country could get some relief from remittance, the rupee devaluation will help increase project costs along with the cost of production of industrial goods,” he said.

Source: The Kathmandu Post