Rupee plunges to all-time low against US dollar

The Nepali rupee touched the lowest level against US dollar on Tuesday as the central bank determined the selling price of per dollar at Rs 86.39—two paisa lower than the previous record of Rs 86.37 on Dec 16, 2011.

The fall of the rupee against the dollar is mainly due to the sharp devaluation of the Indian currency, with which the domestic currency is pegged. Although the Indian currency almost touched a little less than its record low value against the dollar, the NRB fixed the record low value of domestic currency against the dollar.

A senior NRB official said that there is a little chance of deviation while fixing value of the Nepali currency against dollar compared to the Indian currency value against the greenback. “We determine the value of Nepali currency against dollar on the basis of the value of Indian currenty at around 11am every day,” said the central bank official. “That’s why there remains a little chance of marginal deviation.”

Indian currency had reached as low as IRs 54.15 against a US dollar on Tuesday morning, which is the second lowest since the Indian currency plummeted to a record low at IRs 54.30. Indian media have blamed  worsening global risk environment and concerns about India’s fiscal and economic challenges for the weakening Indian currency.

NRB officials say that 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 support import bills. Importers are also hesitant to make decision on import due to strengthening of the dollar against the Nepali currency.

An importer dealing with electronics said that he is facing difficulty making a decision as importing electronics at high cost may not be wise given the intense competition in the market. “Those who have stocks of materials imported at cheaper rate may attract more customers while those paying high have to suffer,” said the trader.

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.

However, the rising number of migrant workers are likely to send more remittance when the Nepali currency is weak.

The weakening rupee also means the Nepal Electricity Authority will have to pay more for electricity from Bhotekeshi and Khimti hydropower projects, both of whom have power purchase agreements in dollars. Nepal will also have to pay more while repaying its external loans.

Source: The Kathmandu Post