Yet another rupee record sees it fall to 88 per USD
KATHMANDU, MAY 19 -
The Nepali rupee sank to a record low against the US dollar, with the Nepal Rastra Bank (NRB) determining the exchange rate at Rs 88.00 a dollar for Saturday and Sunday—20 paisa down its previous low of Rs 87.28 on May 17.
The Nepali unit’s depreciation against the greenback is mainly because of its peg with the Indian rupee. The Indian currency fell to a record low of 54.91 against the dollar on Friday, before clawing back to 54.4 in late afternoon trade, according to AFP.
Indian media have blamed the turmoil in global markets and concerns about India’s fiscal and economic challenges for the weakening of the Indian rupee.
After reaching an all-time low of Rs 86.37 per dollar on December 16, 2011, the domestic currency appreciated to some extent in latter months, but again started declining since March, setting one after another records.
Although currency devaluation is beneficial for exports, Nepal is less likely to benefit because of its small export basket. The strengthening of the US dollar will increase the cost of imports from third countries (other than India), as Nepal should spend more to support import bills, experts say.
Given the country’s dependence on imports, strong dollar also fuels inflation, as the increased import cost is eventually passed on to end customers, bankers say.
However, importers of raw materials will have to face loss as manufacturing takes some time. “Importers, especially those who use usance letter of credit (LC), will incur heavy losses,” said NIC Bank CEO Sashin Joshi.
While opening LC, importers get up to 90-day credit term. And those who import when the local currency is stronger will have to pay higher after the credit period ends.
Sekhar Golchha, executive director at Golchha Organisation, said prices will skyrocket amid such a strong dollar. “We not only have to bear the expensive dollar, but also the increased custom duty and value added tax,” said Golchha. “The price of electronic goods will go up by 30 to 40 percent and this will significantly reduce already low sales.”
Nepal’s imports from third countries account for around 33 percent of the total imports. As Nepali industries import raw materials from India by paying US dollars, they will have to bear additional burden. However, migrant worker’s beneficiaries will receive more in remittances in domestic currency terms.
Strong dollar also means that the government will have to suffer loss while paying back foreign loans. Finance Secretary Krishna Hari Banskota said the government will have to pay an additional Rs 2 billion in principal amount to external loans his year due to the recent depreciation of Nepali currency.
Also, the Nepal Electricity Authority will have to pay more to Bhotekeshi and Khimti hydropower projects, with whom it has signed power purchase agreements in dollars terms.
Exchange rate (NRs/USD)
Dec 16, 2011 86.37
Feb 6, 2012 78.20
March 6, 2012 80.01
May16, 2012 86.39
May 17, 2012 87.28
May 18, 2012 87.27
May 19-20, 2012 88.00
Source: The Kathmandu Post
