“We are soon halving the volume of IC that customers can exchange from banks and money changers. The extent of withdrawals that Nepali cardholders can make in a day in India too will be slashed accordingly,” said a source.[break]
Presently, the central bank has allowed the banks to allow their clients to exchange as much as IRs 25,000 in a day and issue a maximum of IRs 200,000 in a month. Likewise, clients holding plastic cards that work in India can presently withdraw as much as IRs 25,000 in a day from Indian banks.
Bankers, however, said shortage will deepen further, giving new impetus to black market, if the central bank tightened IC supply. Amid shortage, when banks and money changers are not issuing IC as per the demand in the market, traders said they are already paying Rs 165 to buy IRs 100, which is Rs 5 higher than the legal exchange rate, in informal market.
“If the central bank tightened the supply further, it will raise the informal value of IC,” said a trader.
IC has been on a short supply since more than a year, particularly due to ballooning trade deficit, which touched Rs 177 billion in 2009/10, widespread under-invoicing and booming illicit trade. To manage the supply, the central bank had purchased IC worth Rs 102 billion and supplied Rs 84 billion of that in the market in the last fiscal year. In the current fiscal year too, it has already injected IC worth Rs 65 billion in the market till mid-February 2011.
Though the central bank says the volume of supply made during the period was enough to fulfill trade financing and other needs, availability of IC in the market suggests otherwise.
“Clearly, an unwarranted informal IC market has emerged in the country. We believe some people are heavily misusing the exchange facility to foster this informal currency trade,” said the source.
The central bank arrived at such a conclusion after its study showed that more people were using plastic cards to get IC in India and supplying their withdrawals in the informal market.
The study showed that Nepalis withdrew IC worth Rs 19.09 billion through plastic cards over the first five months of the current fiscal year. Withdrawal during the same period in the last fiscal year was worth just Rs 3.46 billion.
NRB injected fresh supply of Rs 50 billion worth of IC in the market over the period, Rs 15 billion higher than what it had pumped out in the same period last year. Trade deficit had widened only marginally during the period.
The study revealed that transfer of IC through demand draft to India dropped to Rs 1.05 billion during the period from Rs 1.83 billion of the same period last year.
Related story
Revised interest rate corridor system introduced
