Nepali currency plunges all-time low against dollar

Kathmandu, July 22: The significant devaluation of Nepali rupee against US dollar will further affect foreign currency reserves and inflation, said economists.

The country will face an additional burden on the repayment of principal and interest of foreign debt due to the increasing exchange rate of the U.S. dollar, they said.

The Nepali currency is getting significantly weaker against the US dollar over the months owing to Russia- Ukraine war.

The Nepal Rastra Bank (NRB) has fixed the selling rate for one US dollar at Rs.128.29 for Thursday. 

The Nepali rupee plunged to an all-time low against the US dollar today.

Nepali rupee has continuously depreciated against the US dollar for the last few weeks, with depreciating by Rs. 8.61 per dollar in past one year. As of July 21, 2021 a dollar could fetch Rs. 119.68.

Under the current system, the exchange rates quoted by different commercial banks may differ, the NRB said.

According to former chief of the Central Development of Economics, Tribhuvan University Prof.  Dr. Ram Prasad Gyanwaly, improvement in the exchange rate of dollar with Nepali rupee will create more negative impact in Nepali economy at a time of war in Ukraine. 

“The devaluation of Nepali rupees will directly hit inflation further and foreign currency reserves as the government has to spend more Nepali rupees to pay foreign loans. Inflation will be higher during such situation as the price of imported goods will be higher as a result of a stronger dollar,” he told The Rising Nepal.

Stating that the inflation is increasing due to increase in the prices of fuel and other commodities in the international market, he said that devaluation of Nepali rupees would put more pressure on inflation.

"Due to the devaluation of the Nepali rupee, the cost of production of goods will increase along with cost of imported goods, so inflation is 

certain to reach double-digit this year," he said.

"The devaluation of the Indian currency against the U.S. dollar has directly affected Nepali economy as the Nepali rupee is pegged to the Indian currency in the basket system," said economist Dr. Chandra Mani Adhikari.

The Nepali rupee has a fixed exchange rate of Rs. 160 for IRs. 100.

India is under pressure on the US dollar as foreign investors in India are withdrawing their investment and transferring to other countries, especially America, he said, and added that its direct impact is seen in Nepal as well.

The Indian rupee, too, hit its all-time low – 80 per dollar –  on Tuesday. 

"As the US economy continues to recover so far, foreign investors are encouraged to invest in the US economy more than others, so the US dollar continues to strengthen around the world while other currencies are becoming weaker," he said.

He, however, claimed that the exchange rate of the dollar might have decreased because the dollar has reached a peak position at present.

Dr. Adhikari said that the dollar would begin to fall, saying that inflation in the US economy was high and that it would fall into recession shortly.

Owing to the war and its impacts on the world economy, foreign investors are investing in dollars as a secure and quality asset, increasing the value of US dollar.

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, he said.

"We have to focus on export promotion and attract more tourists to benefit from the appreciation of the dollar," he said.