Rupee hits all-time low vs dollar

- Post Report, Kathmandu

Nov 25, 2016-

The Nepali rupee plunged to an all-time low against the US dollar for a second time in a year on Thursday, with Nepal Rastra Bank (NRB) fixing the exchange rate at Rs110.28. It was last traded at this level on February 26, 2016.

The rupee has lost 2.90 against the greenback since Donald Trump won the US presidential election on November 9 as the exchange rate closed at Rs109.90 per dollar on Thursday. 

The rupee will lose 38 paisa more by the time the market opens on Friday, to trade at over all-time low of Rs110.28 per dollar, shows the reference rate of the NRB. The Nepali rupee--pegged to the Indian currency--has been losing its strength with the tumbling of the Indian rupee. 

The Indian rupee, which opened at IRs68.76 against the dollar on Thursday, reached an all-time low of IRs68.86 before closing at IRs68.75 a dollar, according to Livemint.com.

Livemint, quoted analysts, has predicted that the Indian currency may hit a level between IRs70-72 per dollar in the near term, as the Reserve Bank of India (RBI) may want to preserve foreign exchange reserves and utilise it judiciously.

The Indian rupee is currently under pressure as foreign investors are offloading Indian assets, such as shares and bonds, triggering a massive outflow of US dollars.

Foreign investors sold $1.5 billion in bonds and $1.4 billion in equities in India from November 9-17, according to Bloomberg. A similar trend followed in other emerging markets, such as Indonesia, the Philippines, Taiwan and Thailand, has triggered a capital flight putting pressure on local currencies.

There are already indications that Trump will spend more on domestic infrastructure, which will further raise demand for the greenback.

Also, US Federal Reserve Chair Janet Yellen’s remarks last week indicated that the monetary authority is close to raising interest rates as the economy continues to gain traction. Odds that the Fed will raise borrowing rates have risen to 96 percent from 68 percent at the start of this month, according to Bloomberg.  

This may lead to more outflows of the greenback from India and other Asian markets, which will weaken various Asian currencies, including the Indian rupee. A fall in Indian rupee’s value will have a domino effect on the Nepali rupee. 

A weak Nepali rupee, however, augurs well to recipients of remittance from family and friends working abroad.

Exporters too stand to benefit from a weak currency, as foreigners who purchase goods and services in Nepal will get more of the local currency while exchanging dollars. But Nepal has been unable to exploit the opportunity as many firms here cannot operate in full capacity due to long power cuts and other structural problems.

While a weak currency is not likely to lift the country’s flagging exports, it may make imports expensive because Nepali traders have to fork out extra rupees to buy dollars--to settle payments of foreign trade. A high cost of import has the potential to stoke inflation.

Published: 25-11-2016 08:49

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