Performance of Nepali Rupee in Forex Market; Should We Prepare for the Worst?

~Rishab Agrawal

It is not surprising to acknowledge the fact that Nepali currency has drastically fell in the past few years against major foreign currencies of the world. This has resulted in increasing costs of most of the goods imported from various countries. Since Nepal has a fixed rate of exchange with India, depreciation of Nepali rupee is proportional to that of Indian rupee. Let us look the performance of Nepali currency against major currencies of the world in the past two years.

The value of USD, EUR and GBP have boomed while AUD has slightly decreased against Nepali rupee in the past two years.

Nepal, being an import dominated country, this increase has had an adverse effect on the economy of our country. Due to this increase the imported goods have become more expensive and the value of exports have fell also resulting in increased trade deficit. The following is a list of major imports of Nepal as per the eleven month macro-economic data provided by NRB:

From the table above, we can infer that almost all our major imports are used in everyday life and increase in the prices of these goods due to depreciation of Nepali currency has become a burden for each and every person living in Nepal. These imports make up 44% of our total imports.

This is also one of the main reasons for inadequate inflow of foreign investment into the country. Falling currency and slow economy makes Nepal an unpopular choice for foreign investment. Another major effect of this increase is that it fuels the rate of inflation, which in turn increases the nominal GDP of the country which is neither favorable nor a fair indicator of the growth of an economy.

The only visible silver lining of this increase is that it benefits the remittance sector. This results in more value for Nepalese who receive money from abroad in foreign currency. As per the eleven month macro-economic data provided by NRB, Nepal has received remittance of Rs.679.73 Billion. The major remittances have been received from Malaysia, Qatar, UAE and Saudi Arabia. Let us see how Nepali rupee has performed against the mentioned currencies:

As we can see, these currencies have slightly increased over the past two years. It is clear that the increase in above mentioned currencies is not proportional to the increase in major currencies of the world. The fact that Nepali currency has depreciated and impacted the economy and people of Nepal negatively is one which cannot be overlooked. If this continues, it won’t be long before our currency is so devalued that we will have to accept a foreign currency to run our economy like that of Greece, Turkey, Egypt and Venezuela.