Governor urges Indian envoy to relax Indian Currency ban

The central bank governor has asked the Indian envoy to relax the ban on high denomination Indian currency (IC) notes in Nepal.

In a meeting with Indian ambassador to Nepal Jayant Prasad here today at Nepal Rastra Bank, central bank governor Dr Yubaraj Khatiwada said that a relaxation in the ban on Rs 500 and Rs 1,000 denomination IC notes would help solve the current problems of Indian currency shortage in Nepal.

"A limited and regulated relaxation on the ban of Rs 500 and Rs 1,000 denomination notes in the Nepal-India border could help solve the shortage of IC in Nepal," said Khatiwada, adding that facilitation of exchange of Nepali rupees with Indian rupees through banking channels at the Nepal-India border, and limited relaxation for air passengers to carry high denomination Indian currency notes would also help, though the central bank is, currently, consciously educating people on the ban.

"Due to the rising economy of India in the last one decade, Indian currency is on the way to becoming a regional currency," the governor said. "However, the long-term ban on high denomination IC notes in the neighbouring country would not be practical."

Thanking the Indian government and Reserve Bank of India for helping Nepal manage the demand for Indian currency and allowing to invest in Indian securities through Reserve Bank of India, he apprised the envoy of the problems of migrant Nepali workers in India, who have been facing difficulties in remitting due to lack of identity cards. "They have not been able to remit their earnings easily," Khatiwada said.

On the occasion, they also discussed on cooperation between Nepal Rastra Bank and Reserve Bank of India, demand and supply of Indian currency in Nepal, and payment system between the two neighbours.

As per an agreement between the two countries, the government has banned the use of Indian currency notes of Rs 500 and Rs 1,000 denominations for more than a decade to check smuggling and pushing of counterfeit Indian currency into India.

The Indian envoy, on the occasion, assured to raise the issues of smooth passage for remittance from India and troubles of Nepali traders due to the ban on high denomination IC notes. He also promised to facilitate easy supply of cash through ATMs of Indian banks.

Rupee further weakens against dollar

The Indian currency's free fall against the US dollar once again dragged down the Nepali currency to a new low today.
The exchange rate of the Nepali currency vis-a-vis the US dollar crossed Rs 91 for a dollar today on average as Nepal Rastra Bank determined Rs 91.28 for the exchange rate as buying rate for tomorrow based on today's forex trading.
The Indian Currency (IRs) with which Nepal's currency is pegged to has been taking a continuous beating against the US dollar and reached as low as IRs 57.30 in the forex market. Nepali rupee also went along with the slide due to the peg.
The US dollar's gains against the euro and other major currencies in forex markets amid global economic troubles along with Moody's downgrading of the world's 15 biggest banks has aided in the depreciation of the Indian rupee.
Likewise, strong demand for dollar from oil importers and increased capital outflows from India further dampened the Indian rupee. To halt the free fall, Reserve Bank of India has directed state-owned oil firms to buy half of their dollar requirements for oil imports from a single public sector bank.
Though a weak currency is generally bad news for any country, Nepal's foreign currency reserve has swollen thanks to the recent depreciation run.
In the 10th month of the current fiscal year, Nepal's surplus in its balance of payments crossed Rs 100 billion mostly due to increased remittance inflow by 36.5 per cent to Rs 282 billion on the weak Nepali rupee.

Nepal to lift ban on Indian IRs 500, IRs 1,000 notes

Nepal is looking at the possibility of lifting the ban on use of Indian Currency (IC) notes of denomination of IRs 500 and IRs 1,000.
The issue came up for discussion between India's commerce secretary Rahul Khullar and his counterpart Purushottam Ojha in New Delhi yesterday.
"The Nepali side noted the possibility that notes of IRs 500 and IRs 1000 denomination may be rendered legitimate for use in Nepal," the minutes of the meeting said.Nepal had banned use of IRs 500 over a decade ago in June 2000 due to rising fake Indian currency circulation.
The Nepali workers in India have been facing difficulties in repatriating their hard-earned income to Nepal owing to de-legitimisation of IRs 500 and IRs 1,000 and requested that the notes may be allowed for legitimate use in Nepal.
Indian side reiterated its concern regarding circulation of fake Indian currency notes through Nepal and its security implications thereof.
"Nepali side informed that vigilance has been increased to see that such illegal activities are curtailed but Indian side agreed that a strategy should be devised for detecting and punishing those involved in circulation of counterfeit currency," the minutes said.
The meeting of India-Nepal inter-governmental committee (IGC) on trade, transit and cooperation to control unauthorised trade also discussed about export and registration of pharmaceuticals in Nepal.
Indian side stated that Nepal has stopped registration of pharma manufacturing companies until further notice, as a result no new products can be registered and exported to Nepal.

Low inflation must to sustain growth: RBI governor

Reserve Bank of India (RBI) governor Dr D Subbarao said low inflation is necessary to sustain growth and a certain level of regulation is needed to rescue the Indian economy from the current global financial turmoil.
Delivering a lecture, 'Global Financial Crisis and Lessons Learnt by India', at Nepal Rastra Bank here yesterday, he underlined the need to bring down inflation and inflationary expectations to sustain growth.
The visiting governor of the RBI also said deregulation alone is not sufficient to maintain a sound economy and a certain level of regulation is necessary for rescuing the economy from the current financial crisis.
Subbarao''s comments come against the backdrop of the Indian central bank''s fight against inflation, which was 9.44 per cent in June. Besides, food inflation for the week ended July 30 shot up to 9.9 per cent sparking investor fears of another round of monetary tightening, which will further push up interest rates impacting growth.
The RBI has hiked its lending and borrowing rates 11 times since March last year in a bid to curb consumer spending to tame the rate of price rise. However, high interest rates have increased borrowing costs for the industry crimping corporate margins and fanning fears of a slowdown in economy''s expansion.
Subbarao, who is on courtesy visit in the invitation of central bank governor Dr Yuvaraj Khatiwada shared his experience regarding the current global financial crisis with senior bank officials.

Talks on IRs 500 and IRs 1000 denomination notes
KATHMANDU: Governor of Reserve Bank of India Dr D Subbarao said that there is a possibility to transaction of 500 and 1000 denomination notes in Nepal. It is possible to transact those notes in Nepal but it should be agreeded by governments of Nepal India, he said. Curently, 500 and 1000 denomination notes are not accepted in Nepal and its tranasaction is illegal according to NRB laws.

Widening trade deficit with India hurts dollar reserve

Widening trade deficit with India is hurting the foreign currency (forex) reserve, especially dollar.

The central bank purchased Indian currency equal to 102.1 billion selling $2.2 billion in the Indian money market during last fiscal year, reveals Nepal rastra bank data.

"In 2008-09, Indian currency equal to 73.4 billion was purchased selling $1.5 billion," said the central bank attributing an accelerated trade deficits with India for the largest amount of Indian Currency (IC) purchase.

Coupled with the unnatural gold import, the whopping trade deficit with India has been hurting the dollar reserve, said a source at the central bank.

"The gross foreign exchange reserves dropped by seven per cent to Rs 266.57 billion in mid-July 2010 from a level of Rs 286.54 billion as at mid-July 2009," revealed the central bank's annual data supporting the claim.

"Such reserves had grown by 34.8 per cent in a fiscal ago. Out of total reserve, NRB's reserve declined by 8.4 per cent to Rs 205.37 billion in mid-July 2010 from a level of Rs 224.19 billion a fiscal earlier," it said, adding that the gross foreign exchange reserves in dollar terms declined by 2.5 per cent to $3.58 billion in mid-July 2010 against a growth of 18.3 per cent last year.

"The widening of the current account deficit has resulted in the depletion of foreign exchange reserves. Based on the trend of import in the twelve months of 2009-10, the current level of reserves is sufficient for financing merchandise imports of 8.6 months and merchandise and service imports of 7.3 months."

In 2008-09, the cenmtral bank has purchased Indian currency amounting 73.4 billion through the sale of $1.5 billion. However, in 2007-08, the central bank has purchansed IC amounting 70.6 billion through the sale of $1.7 billion.

Similarly, the central bank has injected net liquidity amounting to Rs 118.7 billion through net purchase of $1.6 billion from commercial banks in the last fiscal year. "However, a net liquidity of Rs 142.5 billion was injected through the net purchase of $1.8 billion in 2008-09," according to the central bank.

In 2009-10 the central bank injected net liquidity amounting to Rs 126.6 billion from the open market operations of government bonds and Rs 7.4 billion and Rs 1.0 billion were mopped up through outright sale auction and reverse repo auction respectively, while Rs 131.7 billion and Rs 3.4 billion were injected through repo and outright purchase auction respectively.

"In 2008-09, net liquidity amounting to Rs.9.7 billion was mopped up from such operations. Of the total liquidity mopped up, Rs 7.5 billion and Rs 13.3 billion were mopped up through outright sale auction and reverse repo auction respectively, while Rs 11.0 billion was injected through repo auction," according to the central bank.

Gold hits another record high

The precious yellow metal today hit another record high costing Rs 35700 per tola (11.664 gram). The price of gold per 10 gram was at Rs 30,625 in the local market whereas the silver was traded for Rs 471.50 per 10 gram.
"The Greece crisis coupled with euro and dispute between North Korea and South Korea pushed the international price up," said Tej Ratna Shakya, president of Nepal Gold and silver Traders Asociation (NEGOSIDA). "On top of that the devaluation of Indian Currency (IC) against the dollar also pushed the gold price higher in the local market."
Nepali currency is pegged with the Indian Currency (IC) and its devaluation against the greenback will hit the Nepali rupee too.
"The price in the local market might touch Rs 40,000 per tola," said traders fearing low trade before the marriage season.
Earlier, last Monday the precious yellow metal had touched a record high -- in the domestic market – reaching Rs 35,254 per tola (11.664 gram).
Last recorded high price was because of strong dollar that had contributed to the price hike in the domestic market. However, the silver was traded at Rs 481 per 10 gram that is Rs 561 per tola(11.664 gram) on last Monday.
Gold price began approaching record levels from couple of weeks earlier, when the escalating Greek crisis prompted investors to flee to the precious metal. Heightened concerns about the risk of contagion from Greece’s debt woes have attracted fresh inflows of cash into gold, which is widely regarded as a safe bet in times of economic uncertainty.