Weakening rupee against dollar a big worry for Nepali

Kathmandu February 24- – As Nepali rupee continues to weaken against the US dollar, there has been a sharp rise in the price of goods imported from third countries other than India. NRB on Tuesday set the exchange rate at Rs 109.92 per dollar for Wednesday. The domestic currency had fallen to a low of Rs 110.04 per dollar on Monday. 

According to NRB’s macro-economic report, footwear and garments witnessed highest price rise of 13.7 percent in mid-January this year from among non-food items. Besides weakening of domestic currency, supply disruption mainly pushed the prices, the report stated.  Not only garments, vehicles imported from third countries have also been expensive. “Vehicles we imported from South Korea have cost more due the falling rupee against the US dollar,” said Rupesh Sharma Bhatta, assistant general manager of sales and marketing at Laxmi Intercontinental, the authorised distributor of Hyundai in Nepal. “But we have not yet transferred the increased cost to our customers.” 

The Nepali rupee’s downswing has been attributed to a sharp fall in the value of the Indian rupee (IRs) against the greenback. Since the local currency is pegged with the Indian rupee, with a fixed exchange rate of Rs1.6 per IRs1, any fluctuation in the value of Indian currency has a direct impact on the Nepali currency. According to media reports, the plunge in IC is due to an increasing outflow of foreign investors from India’s capital market along with a rising demand for dollars from Indian importers. 

As Nepali currency continues to weaken, importers maintain their profit on imported goods from third countries by further pushing prices.  Nepali traders import goods by opening Letter of Credit (LC) whose repayment cycle is normally three months. That means importers make payments within three months and the rising dollar puts them at a risk by then. 

 According to Financial Comptroller General Office, Nepal’s external debt rose by Rs16.86 billion during the first quarter of current fiscal year when domestic currency slipped to Rs104.09 per US dollar from Rs101.74 per US dollar. “The debt might have risen more, a comprehensive report is yet to be prepared,” said a FCGO official.

However, remittance inflow is also on the rise as a result of a weak domestic currency because people here receive more in Nepali rupees. During the first six months of this fiscal, remittance inflow grew by 17.3 percent to Rs323.69 billion.