Nepali rupee depreciating

KATHMANDU, AUG 17 –

The Nepali rupee has hit yet another record low, with the Nepal Rastra Bank (NRB) setting the reference exchange rate at Rs 99.02 per US dollar for Saturday and Sunday.

The Nepali currency has been depreciating against the greenback for the last few months. Earlier, it had reached Rs 98.60 per dollar on August 6.

The depreciation of the domestic currency against the dollar is due to weakening of the Indian currency (IC), with which the Nepali currency is pegged.

The Indian rupee shed 60 paisa on Friday to reach its record low of IRs 62.03 per dollar . The IC plunged due to foreign institutional investors’ low confidence in the Indian economy which resulted in capital outflows, according to the Indian media report.

Although the Reserve Bank of India has been making attempts to cap the capital flight, the measures have not been effective so far. The Indian central bank has capped the amount Indian companies can invest abroad and ash also increased short-term interest rates to discourage imports.

But overseas investment from India has already been on the wane, averaging a monthly $400 million in the first half of the year from $710 million in 2012, according to DBS data.  Foreign investors have already sold a net $11.6 billion of the Indian debt and equities since late May, sparking fears of continued weakness, according to the reports.

The continued downfall of the domestic currency against the dollar has started affecting the Nepali economy. Besides the goods imported from countries other than India, raw materials imported from India against the dollar payments have also become dearer.

Akhil Chapagain, an importer, said sales of imported goods, besides daily necessary goods, have plunged 10-15 percent along with the surging prices. He said the market price has already escalated as a result of the depreciating rupee. “As an effect of the strong dollar , market demand has dropped notably as inflation affected the people’s purchasing capacity.”

He predicted a further price rise with festivals around the corner. “This year, prices of goods to be consumed during Dashain will go up by 25 percent,” he said.

A major benefit of local currency devaluation is exports growth, but entrepreneurs said Nepal cannot make such benefit. “The cost of production increases due to transport and other costs, bringing down the country’s competitiveness in the international market,” said Pradeep Jung Pandey, vice-president of the Federation of Nepalese Chamber of Commerce and Industry. According to experts, the appreciation of the dollar can affect remittance inflow positively. But it also increases the government’s cost of debt servicing as it repays loans in US dollar terms in most cases. A strong dollar is also expected to increase the cost of large projects as construction equipment are imported from countries other than India. (Source: ekantipur.com )