Nepali rupee will open at 94.25 per US dollar on Thursday morning, as against Wednesday´s 94.05, after the Indian currency lost its value due to continuous dumping of Indian shares by foreign institutional investors. [break]
Overseas investors have sold US$ 485 million of Indian shares in five sessions, adding to outflows of $4.7 billion in 18 consecutive sessions of debt selling, Reuters has said, quoting data provided by the capital market regulator.
“These outflows from equity markets have added to concerns about the funding of the current account deficit ahead of the US Federal Reserve´s decision on its stimulus program,” Reuters said. “Such concerns have compounded because of the likelihood of the Fed tapering its bond purchases, which could trigger an outflow from emerging markets.”
These concerns, which are weakening Indian currency, are simultaneously causing Nepali rupee to lose its value since Nepali rupee is pegged to Indian currency at Rs 1.6. Because of this peg, any fluctuation in the value of Indian currency affects exchange rates in Nepal.
The latest fall in value of Nepali rupee is expected to fuel inflation as Nepal is virtually a net importing country. This means Nepali traders will have to spend more of domestic currency while purchasing US dollars.
However, Nepal Rastra Bank (NRB), the central bank, has said consumers prices will not go up in a significant manner as Nepal imports most of its goods from India.
“Nepal imports around two-thirds of goods from India, payments of which are made in Indian currency. Since the central bank will make Indian currency available at the same old rate to traders, we don´t think import payments will go up and cause consumer prices to rise,” NRB Spokesperson Bhaskar Mani Gnawali told Republica.
Although what Gnawali said is valid, prices of goods imported by India and exported to Nepal, like petroleum products, will go up.
However, weaker Nepali currency is expected to be a boon for exporters, who use home-grown raw materials, and remittance receivers, as they will get more Nepali rupee while exchanging US dollars.
Related story
RBI intervenes as Indian rupee falls to near record low
