Rupee scales to nine-year high

eKantipur.com, 24-Sep-2007
BY KRISHNA REGMI

The rupee rose to a nine-year high against the US dollar Monday with the steady fall of the greenback against the Indian rupee-- to which the Nepali currency is pegged.

While some economists said that the strong rupee has hurt exports, and reduced remittance value, industrialists argued that for a country like Nepal, which has a low export base and an import-dependent economy, the rising rupee is beneficial.

The partially convertible rupee ended at Rs 63.95 a dollar today-- its highest since 1998. Currency analysts said the Indian rupee has appreciated steadily against the dollar after sharp cuts in US rates last week revived strong foreign fund interest in the record-breaking Indian stock market.

According to an official at Nepal Rastra Bank (NRB), the Indian rupee is Asia's best performing currency, rising 11 percent since 2006-end. The dollar has dropped against major global currencies, weighed down by expectations of further US interest rate cuts which are limiting the currency's appeal to global investors.

Dr Ragahb Dhoj Pant, an economist told the Post that the decline in the dollar causes remittances to go down, and this is a very serious challenge for a remittance-dependent economy like Nepal’s as it lessens the purchasing power of the people.

"Pegging of the Nepali currency vis-à-vis the Indian unit for long--- at a rate which is unjustifiable-- is just piling up problems," he said. "The Indian economy's performance is several times better than Nepal's. This necessities review in our pegging system."

Acting Governor of the NRB, Krishna Bahadur Manandhar said the pros and cons of the rise and fall of the rupees seem virtually equal. "The country benefits in imports and outstanding foreign loans, and debt servicing costs fall," he said.

"However, the dollar's decline diminished the spending by tourists in Nepal. It also threatens to make exports more expensive, and therefore less competitive."

The total foreign debt decreased to Rs 213 billion by the end of the last fiscal year, from Rs 233 billion a year earlier, due mainly to a drop in the American currency.

Rajendra Khetan, president of Young Entrepreneurs' Council said if overall impact is analyzed, it is better for the economy to have a strong rupee. "It makes imports cheaper and does not allow inflation to reach a very high trajectory," he said.