Nepali rupee depreciates against US dollar

July 18, 2006
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Nepali currency has depreciated against US dollar by Rs. 4 during the last year.

Nepal’s central bank has said Nepali currency has weakened against the greenback by about Rs.4 over the last one year.

According to Nepal Rastra Bank (NRB), the buying price of the US dollar on July 18 last year stood at Rs.70.35. Exactly a year later, the exchange rate stood at Rs 74.43 for one US dollar on Tuesday. Only a month ago, the exchange rate stood at Rs.73.35 and six months ago it was Rs.71.15 for one dollar.

The cause of the weakening Nepali currency is due to weakening of the Indian currency since the Nepali currency is pegged against the Indian rupee, according to experts.

Talking to Nepalnews, director at the Research Department of the NRB, Nara Bahadur Thapa, said since western investors have begun investing more in the US (instead of in Asian countries) where interest rates have increased in the recent years, portfolio investment in Asian countries, especially in India , has decreased. This resulted into increase in the price of US dollar in the Indian market and subsequently in Nepal also.

The short term interest rates in US has increased substantially over the last year as US economy is growing strongly despite its huge trade deficit.

According to Thapa, depreciation of Nepali currency against the US dollar will have positive impact on Nepali exporters while importers are likely to turn losers. Since Nepal’s import bill is higher than export, inflation is likely to go up if the trend continues, he said.

Of course, there is some positive side too. Remittance being sent by Nepalis—who work abroad– back to their families will increase in real terms with the rise in the price of the greenback, Thapa said. He, however, added the depreciation of Nepali currency would affect the implementation of new budget since it will directly affect debt servicing by the government.

Interestingly, as US currency is getting stronger, Nepali banks have begun to invest in western banks. According to NRB, the investment by private Nepali commercial banks to banks based in the US and Europe reached Rs.9 billion in the year 2005-06. It was only Rs. four billion the previous year.

Thapa predicts that given the strong growth in the US economy, the price of dollar is likely to go up against the Nepali currency in coming days.

This means that Nepalis will have both good and bad news awaiting them with the strong performance of the greenback.