Rupee hits yet another low against dollar

It takes Rs 100 to exchange $1 as the greenback today strengthened against the Indian Rupee with which Nepali rupee is pegged at.

The central bank today fixed Rs 99.02 reference selling rate for a US dollar which has appreciated by more than 10 per cent in the last one year.

Though the weakening Nepali rupee could help boost remittance inflow and exports earnings, the import-based domestic economy could not take any benefit from the free fall of rupee that used to be at Rs 88.60 a US dollar in mid-July 2012.
The central bank could, however, neither revise the peg with the Indian Rupee nor can it be a mere spectator of the free fall as it is doing more harm to the economy than good.

Nepali Rupee that is pegged at Rs 1.60 with the Indian Rupee is cushioning the domestic economy – that is import based – in the long run, though it has hurt currently. Had the domestic economy been export-based, there could be chances of revising peg or unpegging Nepali Rupee like other currencies.  But the current structure of domestic economy does not give enough room for the Nepali Rupee to left floated.

The regular depreciation of the Nepali Rupee has, but, pushed the inflation up hitting the consumers hard.

The imports including petroleum products – the largest import of the country that stood at around Rs 108 billion in the last fiscal year – became expensive due to depreciation of Nepali Rupee vis-à-vis US dollar.

Though, the Reserve Bank of India is trying hard to arrest the free fall of the Indian currency, it has not been successful and the Indian Rupee is loosing ground further hurting the Nepali Rupee.

The free fall of Indian Rupee has created worldwide ‘panic selling’ of Indian currency further deteriorating its value, though the US dollar is getting stronger against all the Asian currencies.

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.

NRB to invest in 91-day Indian T-Bills

Nepal Rastra Bank (NRB) can now invest in higher interest yielding 91-day Treasury Bills (T-Bills) issued by Indian central bank.
Reserve Bank of India (RBI) has given green signal for Nepali central bank to purchase more interest yielding 91-days T-Bills, said spokesperson for NRB Bhaskar Mani Gyanwali.
Currently NRB's investment portfolio contains 14-day Indian T-Bills only along with T-Bills of financially stronger countries. "Investing in instruments with longer maturity period means NRB yields more interest income," he said, adding that central bank had requested Indian central bank to allow investment in the securities with longer maturity period for higher interest income.
During the recent official visit of Prime Minister Dr Baburam Bhattarai to India also the matter was discussed as a high priority.
For Nepal, investment in Indian securities is more lucrative than in treasuries belonging to foreign countries as Indian T-Bills are yielding returns higher than three per cent. Moreover, the recent global financial scenario has signaled to volatility of government securities issued by developed countries.
NRB´s investment on 14-day T-Bills in India has been fetching it interest income of five per cent. With investments in 91-day T-Bills, the investment will yield eight per cent return.
According to the NRB report, its investment is presently fetching returns at an average of 1.40 per cent. Returns on investment done on dollar stands merely at 0.3 per cent, which is much lower than investments on other convertible currency and in India.
According to NRB, it has put around 18 per cent of its total investments in US treasury bills and invested another 55 per cent on US dollar, 17 per cent in Euro T-Bills and about 10 per cent in UK T-Bills.
"The investment in dollar-denominated treasuries is rather less profitable due to interest rates being lower," Gyanwali said, adding that NRB can not invest the reserve in single currency or instruments as Nepal needs all types of currencies to make payments for imports.
The central bank's investment trend of last couple of years demonstrates the rearrangement of its investment portfolio. NRB had invested Rs 46.8 billion in US government T-bills in fiscal year 2008-09, which was reduced to Rs 29.7 billion in the next fiscal year.
However, the investment in Indian T-Bills have been more than doubled in the same period from Rs 18 billion to Rs 38.9 billion.
Along with the investment in treasuries, the major chunk of NRB reserves is kept in liquid instruments like foreign currencies especially — US dollars and in precious metals like gold and silver.
The Investment Guidelines allow NRB to invest as much as IRs 25 billion on Indian instruments. It also seeks NRB to maintain 40 per cent of total investment portfolio on liquid instruments. But NRB must make sure it has enough reserve to finance goods and services imports for six months and have to clear principle and interest of external debts for a year, according to Guideline.
As global economic instability has been affecting currency and securities market, the central bank’s profits has been dropping in recent years. The profit for 2006-07 had stood at Rs 6.25 billion, but it dropped to Rs 1.73 billion in 2009-10. However, it increased to Rs 2.28 billion in 2010-11.
Diversifying investment in more Indian securities has been a prominent issue that NRB had been lobbying for since some time.
Along with it, NRB has also been lobbying to RBI for the permission to open branch of Nepali remittance companies in India for channelise remittance formally.
At present, RBI allows the remittance from India through its Indo-Nepal Remittance Facility that allows Nepali migrants to send up to 50,000 Indian Currency (IC) in a single transaction through its National Electronic Fund Transfer (NEFT) member Indian commercial banks to Nepal SBI Bank's account that then routes the remittance to the receiver through its branches or a designated money transfers.
However, the money transfer channel has not been much successful as migrant workers in India are not aware about the money transfer facilities and chose to use informal channels.

CRANE becomes Nepal's first credit rating agency

Finally Nepal has a credit rating agency.
Credit Rating Agency Nepal Pvt Ltd (CRANE) has become the first credit rating agency (CRA) to be registered in Nepal and will start operating from November.
CRA is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. The issuers of securities are companies, special purpose entities, state and local governments, non-profit organisations or national governments issuing debt-like securities that is bonds that can be traded on a secondary market.
A credit rating for an issuer takes into consideration the issuer's creditworthiness such as ability to pay back a loan and affects the interest rate applied to the particular security being issued. Prior to buying the securities, the public can get complete and reliable information about the instrument where one is going to pour in hard-earned money.
With the increasing domestic corporate world of especially financial institutions, such rating agencies are the need of the hour.
"Such rating agencies are self regulated and its not a compulsan rather a certifiaction that can boost the confidence of the investors and the company itself," said CRANE chairman Sujeev Shakya. CRANE will begin rating services for individuals, corporates, financial institutions and instruments issued by them. "It will provide a full range of international quality rating and grading services for individuals and organisations," he added.
CRANE has also signed a Memorandum of Understanding (MoU) with CARE Ratings -- India's premier rating agency Credit Analysis & Research Ltd. CARE Ratings is a full-service rating company that offers a wide range of rating and grading services across sectors. It has unparalleled depth of expertise and its methodologies are in line with the best international practices.
Recognised by Securities and Exchange Board of India (Sebi), Government of India (GoI) and Reserve Bank of India (RBI) CARE Ratings has completed over 6,256 rating assignments having aggregate value of about IRs 18,248 billion (till June 30), since its inception in April 1993.
CARE Ratings managing director D R Dogra hoped that the MoU would bring world class rating methodologies to Nepal and add a complete new dimension to the country's domestic financial and corporate world.
Shakya said it was a continuation of beed management's efforts to pioneer new businesses in Nepal. "We look forward to fill the void of a rating agency in Nepal and change the way business and financial transactions are conducted," he said.

Workshop @Pune

Interactive Workshop for Media Persons from Nepal was organised by Collage of Agricultural Banking, Reserve Bank of India, in Pune from February 5 to February 8.