Kathmandu, March 19
When the market opens tomorrow, the Nepali currency would have been devalued to a historic low vis-à-vis the US dollar, plunging by more than one rupee in a single day, according to the exchange rate fixed by Nepal Rastra Bank.
Against today’s exchange rate of Rs 119.11 per dollar, the central bank’s reference rate for Friday shows each US dollar will fetch Rs 120.28.
Nepali rupee, which is pegged with the Indian currency, has slid against the dollar as the Indian rupee has come under pressure. The rise and fall of the Indian currency directly affects the Nepali exchange rate. The Nepali currency has been on a free fall in line with the Indian rupee.
Going by tomorrow’s rate, Nepali currency has been devalued by 3.39 per cent over the last one year.
The last time the local currency had plunged to an all-time low was on October 10, 2018, when the exchange rate of US dollar had been set at Rs 119.33.
Today, the Indian rupee hit a fresh record low of 75.0100 against the dollar, as worries about tightening liquidity boosted demand for the world’s reserve currency.
While the strengthening of the dollar is good news for remittance recipients, its overall impact on the economy is negative. This is because Nepal is an import-based economy, which means that the country’s imports will become costlier, which in turn will stoke inflation.
According to the central bank’s macroeconomic update of the first seven months of this fiscal year (mid-July to mid-February) that was unveiled yesterday, the country’s inflation had jumped to 6.87 per cent. The robust greenback will make it more difficult for the government to achieve its target of taming inflation at six per cent this fiscal.
Moreover, the strong dollar could also widen the country’s ballooning trade deficit, which stood at a staggering Rs 738.63 billion as of mid-February.
The dollar surged today as extraordinary steps by central banks across the world to cope with a coronavirus-induced financial rout had mixed success, Reuters reported.
The dollar gained against the British pound to its highest since 1985, last up 0.8 per cent at $1.1535, as investors rushed to secure liquidity.
As per Reuters, against a basket of six major currencies, the dollar gained 0.6 per cent, near a more-than-three-year high touched a day earlier.
Bond markets recovered after the European Central Bank (ECB) pledged late on Wednesday to buy 750 billion euros ($820 billion) in sovereign debt through 2020. That brought the ECB’s planned purchases for this year to 1.1 trillion euros, with the new purchases alone worth six per cent of the eurozone’s gross domestic product.
“The announcement (the ECB) has made has gone some way to comforting markets that borrowing costs in those economies won’t be allowed to spiral higher,” Mike Bell, global market strategist at JP Morgan Asset Management, told Reuters.
A version of this article appears in print on March 20, 2020 of The Himalayan Times.