Nepali rupee plunged to an all time low against the greenback after the Indian currency continued to underperform mainly due to crisis in the eurozone. [break]Since Nepali rupee is pegged to the Indian currency and the central bank fixes rupee´s exchange rate to the greenback based on Indian currency´s value to the dollar, weakening and strengthening of the Indian rupee has direct impact on Nepali rupee.
Although slump in value of domestic currency usually bring smiles on the faces of exporters, this theory does not hold true in case of Nepal as most of the exportable goods -- except few like agri-based products -- are manufactured using imported raw materials.
Pashmina industry, which manufactures its products using wool shipped in from abroad, recently said the strong dollar has already pushed up pashmina production cost by around 15 percent, as payments of raw materials bought abroad have to be settled in the US dollar. Nepal Pashmina Industries Association fears continuous appreciation of the greenback may spook international buyers, rendering them without any orders.
In the past one month alone, Nepali rupee has shed seven percent of its value to the greenback. This means imports, which are paid in US dollar, have become expensive by at least seven percent in a month-long period.
This is one of the reasons why prices of apparels, which are imported from China and Thailand, have gone up by at least 20 percent in the domestic market. This applies to all goods that are imported and paid in US dollar.
The appreciation of dollar has also raised the cost of debt servicing for the government, as credit obtained from foreign countries or agencies has to be paid in convertible currency.
But this does not mean country is at a loss due to appreciation of greenback. Receivers of remittance, for instance, is one such group which is benefiting from depreciation of Nepali currency.
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