Nepalese Rupee comes under pressure again

Kathmandu December 8- The Nepali currency is once again on shaky ground, as the Indian rupee, with which the country’s currency is pegged, has continued to come under pressure.

Nepali rupee will open for trading at 107.11 against the US dollar on Wednesday, lower than yesterday’s 106.92, shows the reference rate of Nepal Rastra Bank, the central bank.

Although Wednesday’s exchange rate is slightly higher than those of Saturday and Sunday, when the Nepali rupee had plunged to a 27-month low of 107.23 per US dollar, signs of Nepali currency further losing ground have started to appear because of the weakness seen in the Indian currency.

Weakness in Indian currency will automatically cause the Nepali rupee to slide because Nepali rupee is pegged to Indian rupee at 1.6.

Indian rupee is currently under pressure because of signals that the US Federal Reserve will raise benchmark interest rate and decision made by the European Central Bank on Thursday to slash deposit rate to minus 0.30 per cent from minus 0.20 per cent. Further, there are fears that foreign institutional investors may pull out of India because of delay in endorsement of the Goods and Services Tax (GST) Bill. Because of these factors, the Indian currency fell to a two-year low of 66.90 against the US dollar in early trade on Friday. Since then, it has recovered some of the losses, and closed at 66.84 today.

A weak currency benefits recipients of remittance, as they will get more Nepali currency while exchanging money sent by overseas migrant workers. A weak currency also provides leverage to exporters, as foreign buyers will get more of local currency to purchase goods or services here while exchanging dollars. But this theory does not always apply in Nepal where exporters have to deal with power cuts for prolonged hours and other structural problems.

Because of these reasons, Nepal has not been able to give a boost to its exports.

While there is no improvement on exports front, imports — except in the first three months of this fiscal year — have continued to rise because of the nation’s status as ‘net importing country’. This means a weak currency will only stoke inflation in a country like Nepal because importers have to pay more of domestic currency while purchasing foreign goods priced in US dollars. Source: THT