KATHMANDU, Oct 5: Rupee has tumbled to a record low against US dollar.
As per the reference rate published by the Nepal Rastra Bank (NRB) for Friday, the local unit plunged to 118.03 per dollar compared to 117.65 on Thursday. This means 1 US dollar will fetch Rs 118.03 -- the most ever -- on Friday.
The domestic currency has been depreciating at a rapid rate against the greenback in line with the free fall of Indian rupee with which it is pegged.
What rupee's free-fall means for country (with video)
Since January 1, the value of US dollar has appreciated by a whopping 15.34 percent, or Rs 15.73. Economists say that the rupee rout poses a risk to external sector stability of countries like Nepal which relies heavily on imports.
The slump of the local rupee is going to exacerbate the country's trade deficit which has been widening at an alarmingly high rate. Since import is becoming costlier due to depreciation of the local unit, the country will have to pay more amount of money for the same quantity of goods. Similarly, costlier imports will also put upward pressure on inflation as the rise in the price of imported goods is eventually passed on to consumers.
The appreciation of the US dollar coupled with rising oil price in the international market is causing additional losses to the Nepal Oil Corporation (NOC) -- the state-owned petroleum monopolist. Susheel Bhattarai, managing director of the NOC, told Republica that the rising dollar and oil price in the international market will cause monthly loss of Rs 1.29 billion to the state-owned entity.
Similarly, the rapid surge in dollar price also means the government has to fork out additional amount of money to service its foreign debt. Another state-owned company that is going to suffer from rupee rout is the Nepal Electricity Authority which has signed power purchase agreement with some hydropower developers in dollar terms.
However, the export sector stands to gain from the depreciation of rupee. Given that the export base of the country is weak, there is little benefit that the country can reap from the appreciation of the greenback. Tourism sector and remittance receiving households are also expected to benefit from the rapid surge in dollar price.The rise in interest rate in the US on account of improvement in its economy is attributed to the rout of the Indian rupee while soaring oil price has aggravated the issue further.
