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

Forex at all time high at $ 4.5b.

KATHMANDU, Jan 12:

Though real estate slump and low industrial output continue to challenge policymakers, key economic indicators portray a completely different picture, indicating that the country´s economy has dramatically turned around in recent months.

About a year ago in December 2010, the country was reeling from a balance of payments deficit of well around Rs 6 billion.

But now, Nepal Rastra Bank (NRB) says, the country´s balance of payments situation has turned positive to well over Rs 47 billion. This is already a 34-year high situation.

To add to this confidence, its latest data suggests that the country´s foreign exchange reserves have accummulated to US$ 4.59 billion, which is a historic high.

“Reserves in dollar terms have grown by well around 20 percent in the first five-and-a-half months of this fiscal year alone,” said an NRB source. They grew by a meager 6 percent in the last six months of 2010/11.

Amid higher imports growth and low remittances receipt, Nepal´s foreign currency reserves in post-2008 global financial crisis was between US$ 3.4 billion and US$ 3.7 billion till last fiscal year. But since September 2011, reserves have surpassed the US$ 4-billion mark. The central bank attributed the situation to a strong rebound in remittances receipt, tourism and exports income.

“If you compare the reserves in terms of Nepali rupee, our total foreign exchange holding has grown by well over Rs 100 billion since mid-July 2011 and touched Rs 377 billion in December end 2011,” confirmed Lila Prasad Sitaula, executive director of NRB Foreign Exchange Division.

During the period Nepal received well over Rs 130 billion worth of foreign currency in remittances alone.

“The figure is more than 34 percent up over the remittances that the country received between mid-July and December-end 2011,” added Sitaula. Nepal had received Rs 96.58 billion in remittances during the period.

Though Nepal failed to realize the goal of 1 million tourists in Nepal Tourism Year 2011, NRB says the campaign did contribute the tourism income to grow by 37 percent during mid-July to December-end 2011. “That too had a lasting impact on the forex reserves of the country,” said the source.

What also helped the country enjoy a sharp rise in foreign currency reserves is a double-digit growth in exports. According to NRB, Nepal´s export during the first five months of this fiscal year has grown by around 12 percent.

Officials said such a strong forex reserve has created an environment whereby foreign investors can be tempted to invest in the country.

Though a rise in foreign currency reserves is anticipated to step up money supply, causing inflation to rally, senior NRB officials said such a situation is unlikely as the central bank has been regularly intervening in the market and mopping up excess money.

Source: Republica