Nepali rupee weakens further against dollar
KATHMANDU, MAY 23, 2012
KATHMANDU, MAY 23, 2012
The Nepali rupee sank to a record low against the US dollar, with the
Nepal Rastra Bank (NRB) fixing the exchange rate at Rs 88.23 a dollar
for Wednesday—losing 23 paisa on its previous low of Rs 88 on May 18.
The fall of the Nepali rupee against the dollar is mainly due to the sharp devaluation of the Indian currency, with which the domestic currency is pegged. With the dollar gaining sharply against the Indian currency, the Nepali rupee is on a freefall in recent times—losing its value by 12.23 percent since March.
The recent fall has put Nepali rupee among the ten worst performing currencies vis-à-vis the greenback. According to report published in Indian daily The Hindu, the currencies of Myanmar, Malawi, Brazil, Nepal, Swaziland, Namibia, Lesotho, South Africa, Bhutan and India are the ten worst-performing currencies.
The Indian currency also hit its all-time low of 55.47 against the dollar on Tuesday due to a large dollar demand from oil firms and weak global risk sentiment.
The Indian media have reported that the falls came even after the Reserve Bank of India (RBI) announced on Monday measures to target arbitrage and speculation in futures and options markets, with traders saying this market segment was too small to have a big impact. The RBI has announced a string of measures to curb the rupee’s falls, none of which has so far succeeded.
Bankers say the depreciation of domestic currency is good for the export but it will increase the cost of third-country imports as more domestic currency is required to pay off import bills. Strong dollar will fuel the inflation in an import-dependent country like Nepal. NRB Deputy Governor Maha Prasad Adhikari said that a strong dollar will make it difficult for the central bank to check the inflation. “However, since the currency is pegged with Indian currency, we cannot do anything to control this depreciation.”
Bankers say that those involved in trading will pass on the cost immediately to buyers but those importing raw materials from third countries will incur loss as it takes time to pass on the cost.
“Importers, specially those using usance letter of credit (LC), stand to suffer heavy losses,” said Sashin Joshi, CEO of NIC Bank. Opening a usance LC allows importers to get credit term up to 180 days, those who had initiated imports at a time when local currency was stronger and sold the goods will have to pay higher once the credit period ends. Joshi also feared about the possible defaults in LC.
“We haven’t observed any default in LC so far due to fluctuation in exchange rate but in coming days we might have to face it,” said Joshi.
Director of Jyoti Group Saurabh Jyoti said the strong dollar would lead to a sharp rise in the prices of imported goods. “We not only have to bear the expensive dollar but also the increased custom duty as well as the value added tax,” said Jyoti.
With imports from third countries accounting for around 33 percent of the total imports, the economy may face inflationary pressure. Nepal imported goods worth Rs 261.63 billion from India in the last fiscal, while those from third countries stood at Rs 133.27 billion. As Nepali industries import raw materials from India by paying US dollars, they will have to bear additional burden.
Likewise, the government will also suffer loss while paying back foreign loan in the backdrop of a strong dollar. Finance Secretary Krishna Hari Banskota said that at the current rate the government will have to pay around Rs 10 billion more in principal amount this year. “As we have to repay the loan in dollar, the strong dollar means an additional burden for us,” said Banskota.
Source: The Kathmandu Post
The fall of the Nepali rupee against the dollar is mainly due to the sharp devaluation of the Indian currency, with which the domestic currency is pegged. With the dollar gaining sharply against the Indian currency, the Nepali rupee is on a freefall in recent times—losing its value by 12.23 percent since March.
The recent fall has put Nepali rupee among the ten worst performing currencies vis-à-vis the greenback. According to report published in Indian daily The Hindu, the currencies of Myanmar, Malawi, Brazil, Nepal, Swaziland, Namibia, Lesotho, South Africa, Bhutan and India are the ten worst-performing currencies.
The Indian currency also hit its all-time low of 55.47 against the dollar on Tuesday due to a large dollar demand from oil firms and weak global risk sentiment.
The Indian media have reported that the falls came even after the Reserve Bank of India (RBI) announced on Monday measures to target arbitrage and speculation in futures and options markets, with traders saying this market segment was too small to have a big impact. The RBI has announced a string of measures to curb the rupee’s falls, none of which has so far succeeded.
Bankers say the depreciation of domestic currency is good for the export but it will increase the cost of third-country imports as more domestic currency is required to pay off import bills. Strong dollar will fuel the inflation in an import-dependent country like Nepal. NRB Deputy Governor Maha Prasad Adhikari said that a strong dollar will make it difficult for the central bank to check the inflation. “However, since the currency is pegged with Indian currency, we cannot do anything to control this depreciation.”
Bankers say that those involved in trading will pass on the cost immediately to buyers but those importing raw materials from third countries will incur loss as it takes time to pass on the cost.
“Importers, specially those using usance letter of credit (LC), stand to suffer heavy losses,” said Sashin Joshi, CEO of NIC Bank. Opening a usance LC allows importers to get credit term up to 180 days, those who had initiated imports at a time when local currency was stronger and sold the goods will have to pay higher once the credit period ends. Joshi also feared about the possible defaults in LC.
“We haven’t observed any default in LC so far due to fluctuation in exchange rate but in coming days we might have to face it,” said Joshi.
Director of Jyoti Group Saurabh Jyoti said the strong dollar would lead to a sharp rise in the prices of imported goods. “We not only have to bear the expensive dollar but also the increased custom duty as well as the value added tax,” said Jyoti.
With imports from third countries accounting for around 33 percent of the total imports, the economy may face inflationary pressure. Nepal imported goods worth Rs 261.63 billion from India in the last fiscal, while those from third countries stood at Rs 133.27 billion. As Nepali industries import raw materials from India by paying US dollars, they will have to bear additional burden.
Likewise, the government will also suffer loss while paying back foreign loan in the backdrop of a strong dollar. Finance Secretary Krishna Hari Banskota said that at the current rate the government will have to pay around Rs 10 billion more in principal amount this year. “As we have to repay the loan in dollar, the strong dollar means an additional burden for us,” said Banskota.
Source: The Kathmandu Post
2 comments:
An engineered crisis. This is the problem with globalisation. Tools like interest costs, forex rates, money supply can be used to bring any economy to its heels. The international banking syndicates have done it to so many economies. And they will continue doing it. First they lend money to countries through the IMF..then they tweak the interest rates. When the debt goes out of hand, they move in and take control of the resources and assets of the country. No system is perfect. India must save the domestic industry if it is going to give its people any chance with livelihood. Say no to FDI in retail and education. Produce Indian, Consume Indian. Be Proud of it. You will not only be saving jobs for other Indians, you will be doing a world of good to your children as well. Do not borrow. Do not use personal loans. No fancy cars. Use community transport.
Its gone up to IC Rs 56 today which means above 90 in domestic market in Nepal. All prices for electronic goods and other commodities imported will have price going up.
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