Nepali rupee continues to weaken against US dollar, inflation to flare up

Nepalis now need Rs 102 to buy a US dollar as Nepali rupee continued to weaken vis-à-vis US dollar that will make central bank hard to contain at eight per cent, as it has estimated in Monetary Policy for the current fiscal year.

Though, the central bank has fixed Es 100.6 as a reference selling rate for today, the commercial banks have fixed more than Rs 102 for a US dollar. The commercial banks can fix the exchange rate, according to the liberal forex regime, on the basis of the reference rate fixed by the central bank.

The Nepal Rastra Bank – the central monetary authority – also has no control over the US dollar exchange rate as Nepali rupee is pegged with Indian Rupee at Rs 1.6. The weakening Indian rupee has taken its toll on the Nepali rupee as the dollar rate fixed by the Reserve Bank of India (RBI) – the central monetary authority – is the base for the central bank too.
Normally, the central bank multiplies the exchange rate fixed by RBI with 1.6 and fixes the reference rate for Nepal.

Though, it was expected Nepali rupee to be over Rs 100 for a US dollar due to weakening Indian rupee, the Indian government and RBI initiatives were supposed to stop the further nosedive of the Indian rupee that could have stopped Nepali rupee too.

The continue depreciation of the Indian rupee took the Nepali currency along the dive forcing the central bank has fixed Rs 102.05 reference rate for selling for tomorrow.

Gloomy economic outlook in the Indian economy has pulled the Indian rupee apart from a fear of US Federal Reserve tapering its massive bond buying programme.

Though, Reserve Bank of India today arrested the further depreciation of Indian rupee by selling dollars, its measures like increasing FDI cap in asset reconstruction companies and easing rules of non-resident Indians’ investment in shares and bonds have not been helpful as overall sentiment is not favourable.

However, the weakening rupee will increase inflationary pressure to the import-based economy. The country’s largest export manpower – migrant workers – though send more remittance, as foreign currencies including US dollar has strengthened, it will also push the market prices up. The increasing inflow of remittance will increase the number of rural poor as the households that do not receive remittance will feel the heat the most.
Last but not the least, the central bank’s and budget’s target to contain inflation at eight per cent will also get a further hit due to weakening rupee.

Gold, silver prices also up

KATHMANDU: The appreciation of US dollar vis-à-vis Nepali rupee has pushed the prices of precious yellow metal also up in the domestic market. Gold price on Tuesday has reached a six-month high of Rs 57,300 per tola (11.664 gram), an increase by Rs 600 from Monday’s price. Gold was traded at $1,370 per ounce in the international market. The gold price is fixed on the basis of international market and converted in terms of US dollar. If the price in the international market changes $10 upwards or downwards, the domestic market also adjusts the price. In the last fiscal year 2012-13, the country witnessed an import of Rs 26.11 billion worth gold from the third country. The silver import also stood at Rs 8.78 billion in the last fiscal year 2012-13. Likewise, silver was traded at Rs 985 per tola in the domestic market.