Nepali rupee weakens further against dollar
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
