Rupee tumbles to all-time low

Kathmandu, January 20

Nepali rupee has tumbled to an all-time low against the US dollar a development which will benefit recipients of remittance income but will hit domestic consumers hard, as imported goods are likely to become expensive in the net-importing country.

Nepali rupee, which closed at 108.52 against the greenback on Wednesday, will lose 72 paisa by the time markets open on Thursday and trade at 109.24, shows the reference rate of Nepal Rastra Bank.

The last time the currency had hit a historic low was on September 4, 2013, when the value of rupee had slumped to 109.03 per dollar.

Nepali rupee has lately been losing ground, as Indian currency is taking a dip due to greater demand for greenback.

Indian rupee today opened for trading at 67.83 per dollar and hit 68.17 the lowest level since September 4, 2013 during intra-day trading, before closing at 67.96.

Nepali rupee automatically comes under pressure whenever Indian currency starts taking a beating, as Nepali rupee is pegged to Indian currency at 1.6.

Indian currency has recently been taking a hit, as foreign investors are dumping Indian assets. Global funds sold US$276 million worth of local shares in India on January 18, Bloomberg said. With this, local shares worth $1.1 billion were sold in January.

As assets are being sold in India, foreign investors, who want to divert money to other markets, are demanding more US dollars. This is exerting pressure on Indian currency.

Similar predicament is being faced by many markets. Markets around the globe are passing through a rough phase due to concerns about economic growth in China. Chinese economic growth stood at quarter-century low of 6.9 per cent in 2015.

“The Chinese slowdown has rippled around the world, crimping demand for South Korean electronics and Australian iron ore, as well as Middle East oil and Brazilian soy,” Associated Press reported.

Indian exports too have fallen for 15 straight months through December 2015, LiveMint said.

In order to give a lift to its growth, China which has already devalued yuan by 3.87 per cent since August 2015 may decide to further weaken its currency to make its exports competitive.

But this will put Indian exports under pressure and raise prospects of further extension in losses of Indian rupee. If Indian currency comes under pressure, the value of Nepali rupee will further depreciate.

A weak currency actually benefits recipients of remittance here, as they will get more Nepali currency while exchanging money sent by Nepalis working abroad.

A weak currency also provides leverage to exporters, as foreign buyers will get more of local currency when they exchange dollars to purchase goods or services here.

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 first five months of this fiscal year  have continued to rise because of the nation’s status as ‘net importing country’.

A weak currency will only stoke inflation, as importers will have to pay more while purchasing foreign goods.