Trade deficit widens as Nepali rupee plunges to an all-time low against US dollar
The Nepali rupee has plunged to an all-time low against the US dollar this week.
On Friday last week, the Nepal Rastra Bank (NRB) fixed the selling exchange rate of one US dollar at Rs. 129.68. Nepali rupee had depreciated by Rs. 1.41 per US dollar in a single day on Friday from Thursday’s exchange rate of Rs. 128.27. On Tuesday, it further plunged to Rs. 130.90. 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.
The Nepali rupee has continuously depreciated against the US dollar for the last few months. 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.
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.
The inclined interest rate in the USA and the recent Russia and Ukraine tension are blamed for the rising value of the dollar.
It is said that 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 will be expensive. as the imported goods come in with expensive dollars. The depreciation of the Nepali currency against the dollar would directly trigger inflation as the import cost of goods will be higher.
When the dollar appreciates, the cost of foreign loans increases and exports become more expensive. The amount allocated in the budget to pay the loan and interest on foreign loans may be insufficient after an increased exchange rate of dollars.