In a rather unfortunate turn of events, the Nepali rupee has plummeted to a record low. As of last Friday, Nepal’s central bank set the exchange rate at Rs140.43 per US dollar. Such a decline is primarily due to the softening of the Indian rupee, with which Nepal shares a pegged exchange system.
This dual exchange rate system means that any swings in the Indian rupee inevitably affect Nepal’s currency as well. For a broader context, the rupee stood at roughly Rs133 against the dollar a year ago. Things took a sharp turn after the onset of the Russia-Ukraine conflict in early 2022, which contributed to global economic upheavals.
Delving into the specifics, a stronger dollar inflates prices of universally priced commodities like petroleum fuel and edible oil. These essentials are dearer for the Nepali populace, given that most are quoted in dollar terms. Moreover, as exchange rate dynamics continue, the rising cost of items like chemical fertilisers poses a significant challenge for agriculture.
Nepal, being an import-oriented economy, encounters sharp inflation pockets due to the dollar’s robust ascent. According to economist Puskar Bajracharya, “As food expenses form a big chunk of household budgets, the rupee’s decline makes basic items pricier.” Indeed, the rise of the dollar affects many layers of the economy unevenly.
There’s a silver lining, though. A robust dollar has fostered an increase in remittance inflows, propelling a substantial 4.1 percent rise to Rs763.08 billion. Nepalis earn more when sending wages back home, strengthening the financial backbone of many families.
Alongside remittances, Nepal witnessed a 31.8 percent surge in exports, touching Rs98.79 billion in the fiscal year’s first half. Despite such growth, imports spiralled up by 7.1 percent to Rs822.37 billion due to the stronger greenback.
Conversely, this depreciation complicates the government’s efforts in managing external debts. Following the crippling 2015 earthquake, reconstruction efforts pushed the debt burden significantly higher.
In an ever-globalised economy, experts suggest the dollar’s strength may linger, thanks to sturdy US economic indicators like high bond yields and market dynamism. Such conditions have manifested previously when the dollar hovered around Rs117 before the ongoing Eastern European unrest.
On another note, fluctuations in the dollar’s value also spike gold prices locally, as [BBC News](https://www.bbc.com/news/business-42856060) has observed during currency instabilities.
Of utmost concern is how Nepal manages this maze of opposing forces. As Bajracharya aptly remarked, the overall economic aftermath relies on the balance between the opposing currents of trade, remittances, and inflation.
For further reading, visit [The Economic Times](https://economictimes.indiatimes.com/news/international/world-news).
