Nepali currency plunged to a record low against the US dollar as Nepal Rastra Bank (NRB) fixed the exchange rate at Rs 136.07 per dollar for Wednesday.
The NRB has fixed the buying rate of the US dollar at Rs 135.47, while the selling rate has been fixed at Rs 136.07 per dollar. The records with the NRB show that the selling price of the US currency has gone up by 19 paisa per dollar compared to the exchange rate on Tuesday.
As Nepali currency is pegged with the Indian currency (INR), the weakening of the INR has taken a toll on the value of Nepali currency against the US dollar. India’s central bank, the Reserve Bank of India, fixed the rate at INR 84.86 per dollar for the day.
According to an Indian media, the Indian currency weakened to an all-time low on Wednesday, pressurized by heightened dollar bids in the non-deliverable forwards (NDFs) market. NDFs are short-term contracts between two parties that settle a cash amount based on the difference between the agreed-upon exchange rate and the actual market rate at maturity. The players of financial market use these instruments to hedge against or speculate on currencies.
The nation’s economy benefits from the strengthening of the dollar in terms of remittance income, tourism sector revenue, and export trade. However, being an import-based country with limited size of export baskets, Nepal’s foreign trade is likely to worsen with an increased deficit as the payments abroad are made mostly in dollars.
Similarly, as soon as the price of the dollar increases, the price of imported foreign goods rises. As a result, the price of fuel may increase. The government will have to face more burden on debt-servicing in the external borrowings.
According to the NRB, the exchange rate of Nepali currency against US $ went down largely in the past three years. In November 2021, the exchange rate stood at Rs 118.87 per dollar, which shows that the US dollar has been expensive by around Rs 18 in the review period.
