KATHMANDU, Aug 31: The value of Nepali rupee against the US dollar has plunged to a new low. The rupee fell to 113.49 against the US dollar, according to the exchange rate fixed by Nepal Rastra Bank (NRB) for Friday. The rate was Rs 113.25 on Thursday.
The Nepali currency is getting weaker in recent days against the greenback in line with the rapid fall of the value of Indian rupee vis-à-vis US dollar.
As the Nepali currency is pegged with the Indian currency, the rise and fall of the Indian currency directly affects the Nepali exchange rate. The Nepali currency has been on a free fall in line with the Indian rupee.
In recent weeks, the value of Indian currency is taking a steep dive on account of strong US consumer confidence data that is prompting investors to pull out their investments of emerging economies like India to invest in the US and in the American currency.
The exodus of investors from emerging markets like India follows the recent decisions by the Federal Reserve, the central bank of the US, to raise its policy rate which has remained at rock-bottom level since the financial crisis of 2008.
The decisions to raise rates in the wake of strong data supporting the recovery have put pressure on the currencies of emerging economies where international investors were pouring their investments seeing the huge potential. The Indian currency has become one of the worst performing currencies in Asia in recent months.
According to the Indian news media, the month-end US dollar demand from importers has also worsened the rout.
Due to the pegging system with the Indian rupee, Nepal cannot rein in the fall of the value of its own currency. Though there are a number of benefits that a currency depreciation can bring, economists worry that a stronger US dollar also means rise in inflation for the country that has been importing many things for consumption. According to the NRB officials, the weakening of the domestic currency could prove to be a boon for remittances, tourism and exports, among other sectors where the earnings are in US dollar.
But, the country’s over-reliance on imports and falling exports leave a little room to benefit from the fall of the Nepali rupees. The NRB officials also worry that the continuous slide of Nepali rupee could exert a pressure on the country’s balance of payment (BoP) which has remained in deficit for most of the last fiscal year -- F2017/18. However, the BoP, which summarizes transactions between a country and the rest of the world, returned to a surplus, albeit marginal, of Rs 960 million in mid-July 2018.
“Since the export capacity of the country has been eroding, we have only few sectors which could reap the US dollar’s appreciation. But, we import most of the things that we consume. The rise of the US dollar’s value means they are getting expensive,” said a senior official at the NRB. “In short, we have more to worry from the depreciation of the domestic currency than to rejoice because this is likely to weaken our external sector, drive up inflation and exert pressure on BoP,” he added.