KATHMANDU, JULY 5
The devaluation of the local currency against the US dollar will exacerbate the woes of an import-based economy of Nepal, with the surge in import bills adding more inflationary pressure, according to experts.
As per the exchange rate fixed by the Nepal Rastra Bank for tomorrow, Nepali rupee will depreciate further from today's record low of Rs 126.63 vis-à-vis US dollar, with each dollar fetching Rs 127.30. The slide of Indian rupee against the dollar has weighed on the Nepali currency as it is pegged with the Indian currency.
Economist Dilli Raj Acharya said the depreciation of local currency against the dollar is most worrisome for Nepal's economy as it quickens inflation. "The slide of the rupee against the dollar will further push up the inflation in an import-based country like Nepal. Consequently, it will hit the consumer welfare and economic competence of the country," he added.
The year-on-year consumer price inflation (CPI) soared to 7.87 per cent in the 10th month of fiscal year 2021-22 (mid-February to mid-May) compared to 3.65 per cent a year ago, the latest macroeconomic data of the Nepal Rastra Bank showed.
According to Acharya, the robust greenback will further widen the country's burgeoning trade deficit, and exert even more pressure on the country's balance of payments (BoP) and foreign exchange reserves.
Acharya said that the strong dollar could also increase foreign debt servicing, thereby resulting in higher budget deficit.
"There is a big chance of capital flight but on a positive note, the strengthening of the dollar is good news for remittance recipients as they will be able to get more local currency for the same amount of dollars," Acharya added.
Moreover, it will be beneficial for export-based enterprises if they use local raw materials. "Therefore, the government should prioritise ramping up our production base."
A version of this article appears in the print on July 6, 2022, of The Himalayan Times.
