KATHMANDU, Dec 4: The Nepali currency has dropped to a historic low against the US dollar after Nepal Rastra Bank (NRB) fixed the exchange rate at Rs 144.10 per US dollar for Wednesday.
As per the NRB records, the price of the US dollar has been in a rising trend since August. In the past one year, the Nepali currency has depreciated by around Rs 9 per dollar.
Since the Nepali currency is pegged with the Indian currency, the weakening of the Indian currency against the dollar has led to the depreciation of the Nepali currency. According to Indian media, India’s rupee weakened as much as 0.3 percent to a fresh record low of INR 90.1325 per dollar.
Revised interest rate corridor system introduced
The Economic Times reported that India’s rupee slipped past the key psychological level of 90 per dollar on Wednesday, as delays in concluding a crucial trade deal with the US continue to dent sentiment. “In the meantime, steep 50 percent tariffs on Indian goods have weighed on exporters, while strong imports have kept dollar demand high and added pressure on the rupee. Together, these pressures have played a role in widening the country’s current-account deficit in the September quarter.”
According to Reuters, an international media, India's trade deficit has been widening and hit a record more than $40 billion in October. “HDFC Bank expects India's current account deficit to rise close to 1.1 percent of GDP this fiscal year and the balance of payments to stay in a deficit,” Reuters reports.
According to NRB officials, the weakening of the domestic currency could prove to be a boon for remittances, tourism and exports, among other sectors where the earnings are in the US dollar. A stronger dollar can provide some relief to Nepal's export trade, although the limited volume of goods exported makes it challenging to fully capitalize on the exchange rate advantage. Similarly, income in the tourism sector is expected to improve, benefiting exporters of Nepali goods, including handicrafts.
However, being an economy with high reliance on imported goods, the domestic market could be affected by higher prices for goods purchased in dollars from abroad. It increases the market price of goods as the country imports most of the raw materials including the capital goods necessary to produce finished goods, according to economists.
Likewise, the soaring price of the US dollar also increases the liabilities of debt burden for the country. The records with the Public Debt Management Office show that Nepal’s liability on public debt increased by Rs 44.22 billion due to depreciation of Nepali currency during mid-July and mid-November this year.
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