The Nepali rupee plunged to an all-time low against the US dollar on Friday. The exchange rate of the US dollar against the Nepali currency that has been steadily rising over the months set yet another new record on Friday after the Nepal Rastra Bank (NRB) fixed the selling exchange rate of one US dollar at Rs. 129.68.
Earlier, on July 21, the exchange rate of one dollar was fixed at Rs. 128.29.
Under the current system, the exchange rates quoted by different commercial banks may differ, the NRB said.
Nepali rupee has continuously depreciated against the US dollar for the last few months. Nepali rupee depreciated by Rs. 1.41 per US dollar in a single day on Friday from Thursday’s exchange rate of Rs. 128.27.
Nepali currency has come under pressure owing to the devaluation of the Indian rupee with which it is pegged. The Nepali rupee has a fixed exchange rate of Rs. 160 for IRs. 100.
After the economic crisis started appearing in many countries of the world, various people started saving dollars, and the demand for dollars in the world market increased, and the price started skyrocketing, said economist Dr. Chandra Mani Adhikari.
The value of the dollar continued to increase after the Federal Reserve Bank raised interest rates. The Fed has raised the average interest rate for the fifth time to 3 per cent.
Nepali rupee has once again become weaker against the US dollar owing to the improving economy of America and the recent Russia and Ukraine tension, he said.
Because of the Russia-Ukraine war, and its impact on the world economy, foreign investors are investing in dollars as a secure and quality asset which has led to the value increase of the US dollar.
Looking at the nature of Nepal’s economy, experts have said that if the price of the dollar increases, the disadvantages will outweigh the advantages.
“Since Nepal is dependent on imports for everything from consumer goods to luxury goods, the increase in the dollar will cause more harm than good to Nepal. The goods and services to be bought by paying foreign currency are expensive. As the imported goods will come in with expensive dollars, its pressure will be seen in the price increase,” Adhikari said.
The depreciation of Nepali currency against the dollar would directly trigger inflation as import cost of goods will be higher, Adhikari added.
“I think that the rising value of the US dollar will further hit the foreign currency reserve which has already dropped significantly,” he said.
When the dollar appreciates, the cost of foreign loans increases and exports become more expensive. Amount allocated in the budget to pay the loan and interest on foreign loans may be insufficient after an increased exchange rate of dollars.
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 US dollar, Adhikari said. When the value of the dollar increases, the money sent by Nepalis working abroad increases the remittance income.
A rise in the dollar will provide relief to the export trade. Along with the income from the sale of goods and services, the income of the tourism sector will also improve. “We have to focus on export promotion and attract more tourists to benefit from the appreciation of the dollar,” he said.
Source : TRN,
