Kathmandu, Mar. 9: The Nepali rupee plunged to an all-time low against the US dollar Tuesday. The Nepal Rastra Bank (NRB) has fixed the selling price of one US dollar at Rs. 123.44 and buying rate at Rs. 122.84 for Tuesday.
Earlier, the exchange rate of a dollar had reached Rs. 123.28 on March 17, 2020. Then after, with the fluctuation, the exchange rate of a US dollar dropped to Rs. 116.4 on March 25, 2021. Under the current system, the exchange rates quoted by different commercial banks may differ, the NRB said.
Nepali rupee has continuously depreciated against the US dollar for the last few weeks and reached record low today. In the last two weeks, Nepali rupee has depreciated by Rs. 3.84 per US dollar. As of February 24, 2022 a dollar could fetch Rs. 119.6. 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 Nepali rupee has once again become weaker against the US dollar lately owing to recent Russia-Ukraine tension, said Dr. Gunakar Bhatta, spokesperson at NRB. "As the US economy continues to recover, foreign investors are encouraged to invest in the US economy more than others, so the US dollar continues to strengthen around the world," he said. Owing to the war between Russia and Ukraine and its impact on the world economy, foreign investors are investing in dollars as a secure and quality asset which is also the reason behind increased value of the US dollar.
The depreciation of the Nepali currency against the dollar would directly trigger inflation as import cost of goods would be higher, he added. “I think that the rising value of the US dollar will affect the foreign reserve severely as the foreign currency reserve of the country has already dropped significantly," Dr. Bhatta told The Rising Nepal. However, the NRB has tightened imports as foreign exchange reserves fall short of targets. NRB has introduced a policy of importing most of the non-essential items with 100 per cent cash margin. It also reduced the gold import quota by 50 per cent to 10kgs daily.
The weakening of the domestic currency could prove to be a boon for remittance, tourism and exports, among other sectors, where the earnings are in US dollar, he said, however the present Russia-Ukraine conflict would affect the flow of remittance across the world and its effect will surface in Nepal as well.
Similarly, the tourism sector of the country has also been affected due to the impact of COVID-19 pandemic. "The devaluation of the Indian currency against the U.S. dollar has directly affected the Nepali economy as the Nepali rupee is pegged to the Indian currency," said economist Keshab Acharya. India is under pressure on the US dollar as foreign investors in India are withdrawing their investment and transferring to other countries, he said, and added that its direct impact is seen in Nepal as well.
According to him, improvement in the exchange rate of dollar with Nepali rupee will create more negative impact on Nepali economy during this situation when the economy was affected by the COVID-19.
“The devaluation of Nepali rupees will directly hit inflation and foreign reserves as the government has to spend more Nepali rupees to pay foreign loans. Inflation will be higher during the situation as the price of imported goods will be higher owing to a stronger dollar,” he said.