Print Edition - 2014-05-24 | MONEY
Rupee gains as US dollar weakens against IC
May 23, 2014-
The Nepali rupee has gained by Rs 6 against the US dollar over the last three months. The appreciation of the rupee is in line with the strengthening of the Indian currency (IC), with which it is pegged.
The Nepal Rastra Bank (NRB) has fixed the exchange rate at Rs 93.94 per dollar for Saturday. The rate was at Rs 99.83 per dollar on February 23. This means the US dollar has plunged by Rs 5.89 against the rupee in the last three months.
The dollar had risen to as high as Rs 108.90 on August 29, 2013, before slowing down. Ever since the election fever gripped India, with different surveys suggesting victory for Bharatiya Janata Party (BJP), the IC started to gain against the dollar.
Earlier, given the economic slowdown in India, foreign institutional investors were pulling out their investment, contributing to the weakening of the IC.
When first phase of Indian general elections began on April 7, the exchange rate was Rs 98.21 per dollar, but the rupee strengthened to Rs 94.37 when the vote counting began.
Analysts also attributed the appreciation of the IC, and subsequently the Nepali rupee, to the political change in India.
Min Bahadur Shrestha, executive director at the research department of the Nepal Rastra Bank (NRB), said increased investor confidence following the political in India seems to be the reason behind the weakening of the US dollar in the Indian and Nepali markets. On Friday, the IC hit an 11-month high of IRs 58.36 per dollar. Shrestha said the dollar could hover at Rs 90-95 per dollar in the future.
The depreciation of the US dollar is likely to affect the Nepali economy in two ways. As a positive effect, it will help cool inflation as imports from countries other than India will be cheaper. Such imports account for around 33 percent of the total imports. And as the negative effect, it could bring down the value of the remittance sent by migrant Nepali workers. As the country is increasingly becoming reliant on remittance for spending, it may also affect business activities.
Shrestha said that the impact of the appreciation of US dollar in remittance has not been seen so far. “Remittance in terms of US dollar grew by the usual rate of 16-17 percent last month,” he said.
Importers expect the price of goods imported from countries other than India may go down. Akhil Chapagain, president of Nepal-Turkey Chamber of Commerce, said the prices could drop by up to 10 percent. “As the import costs have been decreasing in the recent days, it could make foreign goods cheaper,” he said.
He, however, denied the possibility of an instant price drop. “As importers have already booked for imports for now, it could take another one month to see the impact.”
Food stores in the valley also said the prices of imported food items have not come down yet. “The food price has remained stable over the last one month,” said an attendant at Jajodiya Food Store of Gyaneshwor.
Meanwhile, the Reserve Bank of India has started adopting measures to control the downfall of the dollar. According to Reuters, the central bank of India bought the US dollar from the Indian markets on Friday.
Published: 24-05-2014 09:21