Value of US dollar climbs to record high of Rs 109

Appreciation of the greenback has both pros and cons for Nepal

KATHMANDU, Jan 21: The value of US dollar vis-à-vis Nepali currency climbed to a record high on Thursday.

According to exchange reference rate set by Nepal Rastra Bank (NRB), 1 US Dollar was sold at Rs 109.24.

The appreciation of US dollar to an all-time-high is in line with the rally the greenback has seen in the international market in recent months. Though the value of US Dollar was in an increasing trend for the past few years, it was fluctuating around Rs 100-level for around two years until September last year.

Economists attribute the appreciation of US dollar to the recovery of US economy following the economic slump triggered by the world financial crisis of 2008.

Earlier in December, the Federal Reserve, the US central bank, had raised its benchmark interest rate from a range of 0 percent to 0.25 percent to a range of 0.25 percent to 0.5 percent -- the first rate rise since world financial crisis of 2008 that had pushed the interest rate almost to a zero percent level. The decision is considered to be Fed's vote of confidence on American economy which encourages investors to invest on the greenback, according to economists.

The recent rally of US dollar is also interpreted as a growing confidence of investors toward US economy and predictions of the further rate rise by the Fed in its upcoming meetings.

“Since our exchange rate regime is pegged with India, the value also fluctuates in line with changes in India's exchange rate with other currencies. The value of US dollar is increasing in India in recent months, which has also driven value of greenback in Nepal,” Bhisma Raj Dhungana, executive director of NRB, said. “US dollar has remained bullish in the international market mainly due to improving US economy coupled with news reports about slowdown in emerging markets like India and Brazil. When investors feel US economy is improving, they make investment in US dollar, driving up the demands as well as its price,” Dhungana, who heads Foreign Exchange Department of NRB, explained.

Economists say that the rise in the value of US dollar has both pros and cons for a country like Nepal. “Remittances, foreign direct investment, tourism and export industry are the sectors that get a boost by the appreciation of US dollar,” Chandra Mani Adhikari, a senior economist, told Republica. “However, appreciation of US dollar has disadvantages too. The import bills get higher, debt servicing for the dollar-denominated borrowing cost increases, and cost of development projects increases due to our dependence on import of equipment,” he added.

Foreign Exchange Dealers Association of Nepal (FEDAN) Chairman Arun Parajuli terms the appreciation of US dollar as a temporary phenomenon. He sees the value going up to Rs 112 per US Dollar, before taking a retreat. “The rise in the value of US dollar is much to do with the falling price of oil in the international market. Once the price of oil starts rising, dollar's value might go down. The appreciation of US dollar is likely to increase inflation which is already at double-digit,” Parajuli, who is also the chief manager of Sunrise Bank, told Republica.