Kathmandu, April 17:

The rupee today climbed to a nine-year high against the US dollar, as it appreciated further against the greenback, which has been losing its steam vis-à-vis the Indian currency, with whom the Nepali rupee maintains a fixed exchange rate.

The rupee came close to breaching the 66 per dollar level to a nine-year high of Rs 66 against the greenback. It was last quoted this high last in May-June 1998.

Citing strong appreciation of the Indian currency, market analysts and economists speculate that the Nepali currency will continue to rise against the dollar this week, too.

Nepal Rastra Bank (NRB) has set the Nepali rupee’s buying rate at Rs 66.60 a dollar for trading on Wednesday, whereas it was Rs 67.11 today and Rs 68.40 a week ago.

Since the Nepali currency is pegged against the Indian currency, the relation of the Indian rupee with the dollar determines the exchange rate of Nepali rupee vis-à-vis the greenback.

In India, it has already climbed a nine-year high yesterday and is expected to further strengthen in the coming days.

Ramji Regmi, executive director at NRB-Foreign Exchange Department, attributes the appreciation of Indian currency as the sole reason for the sliding dollar value in Nepal. “The US dollar has been weakening worldwide and so it is in India too,” he said, adding that the current level of depreciation will not have a major impact on the Nepali economy.

Regmi, however, said that the central bank would take corrective initiatives, if needed, to maintain the foreign currency reserve and monetary situation of the country.

In India, the banks are reportedly selling dollars to raise rupees to meet their statutory obligations, recently imposed by the Reserve Bank of India. Moreover, India’s forex reserve has already crossed $200 billion mark, which has also slowed down the dollars’ demand in India.

Dr Raghab D Panta, a noted economist says that appreciation of the Nepali rupee against the dollar with pegged exchange rate with the Indian currency would not mean a good result for economy for a longer term.

“With the Indian economy growing at a rate of over eight per cent annually and inflation being maintained at a comfortable level, Nepal cannot compete with India and keep her currency’s exchange rate fixed for over a decade now,” he adds.

Dr Panta underscored the need for Nepal to immediately review its exchange rate with the Indian currency. For doing so, Nepal must devalue its exchange rate in term with the Indian currency.

He further adds that a costlier rupee will be beneficial in one sense; the import bill will be lower and cost of production for many industries, which largely depend on imported raw material, will come down. Possibly the price of imported goods will drop.

But a costlier rupee will hurt exporters, particularly the third country exports.

Nepal’s foreign trade will be further concentrated with India and trade balance may improve, Dr Panta said, adding that a single country trade concentration is not a good sign in today’s globalised context.

With increasing trade concentration with India, especially imports, the Indian currency reserve in the Nepali banking system has dropped significantly.

As a result, Nepal has been buying Indian currency with US dollars.

As of mid-April, NRB has reportedly bought Indian currency worth Rs 56 billion worth from the Reserve Bank of India (RBI).