KATHMANDU, JUL 09 - 2013
The Nepali rupee has fallen its lowest against US dollar , with the Nepal Rastra Bank (NRB) setting the exchange rate at Rs 97.69 per dollar for Tuesday.
The Nepali currency has been depreciating against the dollar for the last three months, with the rupee losing Rs 6.55 over the past month alone. The exchange rate on June 8 was Rs 91.14 a dollar .
The depreciation has been attributed to the recent downfall of the Indian currency with which the Nepali currency is pegged. Despite several efforts of the Indian government and its central bank to tame the IC freefall, it has had little effect.
After Indian rupee plunged to 61.21 against a dollar on Monday, the Indian prime minister declared that the government would hold serious discussion on the matter. The Reserve Bank of India has also been intervening in the market by selling US dollar . The IC is projected to be even weaker amid estimates that it will reach IRs 63 per dollar . This means it may require Rs 100 to purchase one dollar in Nepal.
The continued downfall of the domestic currency against US dollar has already started to affect the Nepali economy. Goods imported from third countries and raw materials imported even from India against US dollar will be more expensive. Although it helps exports, Nepal’s export basket is small and the price rise in goods is expected to outstrip the earning from exports. “Being an import-based country, the cost of living will be much higher,” said Pradeep Jung Pandey, vice-president of the Federation of Nepalese Chambers of Commerce and Industry.
“The cumulative impact of the increase in import cost along with the petroleum price will hit daily earners hard as it would raise the consumers’ price significantly,” he said. “After continued depreciation of the Nepali currency, there has been a drop in LC opening by traders too,” he added. As raw material prices will rise, the cost for Nepali industries will also rocket.
Importers said they were considering increasing the prices of the products. “Most of the traders are in ‘wait and watch’ mood assuming that that the dollar appreciation could be a short-term phenomenon. Now, they are finding it difficult to hold their prices from rising,” said Siddhartha Singhania, operation head at Triveni Byapar.
Singhania, who deals on imported electronic home appliances, said most of the traders have not increased their product prices instantly despite the falling value of the Nepali currency. He predicted that market price may shoot up 10 to 12 percent with the beginning of the new fiscal year.
According to the expert, the appreciation of dollar can affect remittance inflow and export earnings positively. NRB spokesperson Bhaskar Mani Gnawali said there was an increase in remittance inflow in the recent days as an impact of the soaring dollar . “However, we have failed to benefit from exports due to a small export basket.”
Gnawali said the rise in dollar price could also increase cash supply in the country. “In the situation, the central bank will be compelled to issue more treasury bills to absorb the liquidity from the market,” said Gnawali.
He, however, said that country’s high imports from India have kept the impact on the economy negligible. Bankers said the impact of dollar appreciation has been nominal. Ratna Raj Bajracharya, CEO of Global IME Bank, said that despite the strengthening of the dollar massively, there had not been a significant drop in LC-opening. According to him, the impact was seen only on Forward Exchange Order—a type of LC in which the price is set now for products to be purchased. “The importers are unwilling to make the forward exchange order due to the fluctuations in dollar ,” he said.
The dollar price rise has also raised the government’s cost of debt servicing. The government repays loans in US dollar s in most cases. A strong dollar is also expected to increase the cost of large projects as construction equipment are imported from third countries.
Source: The Kathmandu Post
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