Kathmandu, February 17
Nepali rupee is inching towards 110 mark against the US dollar, as it continues to lose value due to continuous pressure felt by the Indian currency.
Nepali rupee, which closed at 109.77 a dollar today, will open at 109.93 on Thursday, hitting another fresh all-time low, shows the reference rate of Nepal Rastra Bank. With this, Nepali currency has lost 7.9 per cent so far this fiscal year, which began on July 17.
Nepali rupee’s rise and fall depends on the movement of the Indian currency because Nepali rupee is pegged to Indian rupee at 1.6.
Today, Indian currency, which opened at 68.52 per dollar, fell to as low as 68.67 during intra-day trading, before closing at 68.47, the lowest since September 4, 2013. The Indian rupee’s level seen today was close to record low of 68.85 witnessed in August 2013.
The Indian rupee is the second worst-performing Asian currency tracked by Reuters so far this year. “Only the Korean won has fallen more.”
Indian currency has recently been taking a hit, as foreign investors are dumping Indian assets. “Overseas investors have sold $2.4 billion more local shares than they bought this year. The Sensex is trading in a bear market, having fallen more than 20 per cent from a January 2015 record,” Bloomberg said.
However, Indian central bank Governor Raghuram Rajan had earlier said that ‘a certain amount of depreciation is necessary’ until consumer prices come down.
A weaker currency will also make India’s exports competitive.
But this theory does not always apply in Nepal where prolonged hours of power cuts and other structural problems work as disincentives for exporters. Hence, weak currency has not been able to give a lift
to Nepali exports.
While there is little improvement on exports front, imports — except in the current fiscal year because of border blockade — have continued to rise because of the nation’s status as ‘net importing country’.
This means a weak currency will only stoke inflation in a country like Nepal because importers will have to pay more of domestic currency while purchasing foreign goods priced in US dollars.
A version of this article appears in print on February 18, 2016 of The Himalayan Times.