Dollar rises as high as Rs 90.10

Customers pay as much as Rs 90.10 for a dollar

KATHMANDU, May 24:

Nepal witnessed a sudden shock of currency volatility on Wednesday, as foreign exchange dealers sharply devalued rupee thrice on the day - a record intervention.

This means customers buying US dollar at different intervals from the same bank had to pay different (and higher) rates. It also rattled importers, as significant jerk in the value of dollar eroded pricing predictability.

“As a result, most of the importers refrained from making payments in the afternoon,” said Pashupati Murarka, vice-president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

Following the consistent fall of Nepali rupee, which hit new lows over the last couple of days, Nepal Rastra Bank (NRB), the monetary authority, had set the exchange rate of dollar for Wednesday at Rs 88.23. But the rate at which Foreign Exchange Dealers Association of Nepal (FEDAN) opened the trading remained far higher at Rs 89.35 at 11 a.m.

At 1:20 pm, the association reset the exchange rate of greenback at Rs 89.70, citing rise in demand for dollars and sudden devaluation of Indian currency, with which rupee is pegged, in the intra-day trading in India. FEDAN again lowered the value of rupee at 3:50 p.m., making a dollar cost Rs 89.90 in the Nepali market.

“We had to review the exchange rates because Indian currency touched the psychological level of IRs 56 per dollar amid concerns of the euro zone and India´s own vulnerabilities. The pressure was immense,” Bijay Bahadur Shrestha, president of FEDAN told Republica.

As commercial banks deal at rates that vary over what FEDAN sets, customers in the afternoon paid more than Rs 90 to get a dollar. “The highest rate that customers paid for a dollar was Rs 90.10 at Nepal SBI Bank,” said a source.

The bank, however, lowered the exchange rate to Rs 89.90 at the closing, according to a banker.

Prime Bank closed exchange at Rs 90.05 on the day, while Rastriya Banijya Bank´s closing rate was Rs 90 per dollar. Other banks closed the day´s trading at Rs 89.90 per dollar.

The average closing rate recorded on the day was 24 percent higher over last year´s annual selling average. This means dollar´s rally has already rendered Nepal´s imports expensive by a quarter over the last 10 months. As Nepal largely fulfills industrial raw materials, fuel and daily consumable goods through import, it has affected industries and general consumers alike.

“No wonder, even the Chinese goods that used to be regarded as cheaper products have become expensive by over 20 percent in the market,” said an NRB official.
The appreciation of dollar has also raised liability of debt servicing, which needs to be serviced in convertible currency, for the government, and exerted pressure to the Nepal Electricity Authority (NEA) that pays electricity purchased from Bhotekoshi and Khimti on dollar.

Rupee´s devaluation, however, benefited remittances receivers. It has also enabled government enjoy gains in case of loans issued on US dollar.

Source: Republica

Dollar all time high against other currencies.

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