Strong dollar may fuel inflation

Nepalis may have to face price rise in goods imported by paying US dollars before the Dashain festival due to the currency’s significant rise against Nepali rupee.

Over the last one month, Nepali rupee has become weaker by Rs 6 per dollar. On Saturday, the rupee was at Rs 78.51 per dollar, weakest in the last one-and-a-half years. It was at Rs 72.75 per dollar a month ago. This week alone, the dollar went up by Rs 3.

Given the high demand for US dollars around the world amid eurozone crisis, it has also posted a significant gain against the Indian currency. And, as the Nepali currency is pegged with India’s, Nepal also witnessed its currency’s devaluation against dollar.

In addition to the rise in import costs, Nepal is entitled to pay more while repaying foreign loans that matured in recent days. People embarking on foreign travel will also have to pay more for air tickets. As India imports about 75 percent of its total petroleum requirement and Nepal imports from India, the high petroleum price fuelled by strong dollar will get transferred to Nepal as well. However, Nepalis sending remittance home and those having dollar account can benefit from this fluctuation in exchange rate.

Traders say the strong dollar will definitely increase price of goods imported from third countries, and goods imported from India by paying US dollars. “As we have to pay valued added tax (VAT) and other charges as per exchange rate maintained on the day of customs clearance, goods imported in recent days have become expensive,” said Suresh Basnet, president of Nepal Chambers of Commerce. “Those opening the letters of credit in recent days should also pay more for imports.”

Of late, the number of items imported by paying dollars has risen significantly, with the Nepal Rastra Bank expanding the list of products that can be imported from India by paying US dollars amid increasing demand for IC in Nepal. This means Nepalis may have to price rise ahead of the festival. “It will mount pressure on inflation to some extent,” said Maha Prasad Adhikari, deputy governor of NRB. “Maintaining inflation at the targeted level will be challenging.”

However, economist Bishwombher Pyakuryal said the recent surge in dollar would not make a huge difference as far as inflation is concerned given a huge size of informal trade. “I don’t think the rising dollar will have a significant impact on inflation,” he said.

Pyakuryal also does not expect a significant rise in the country’s foreign debt liabilities. “Given the long term nature of Nepal’s debt liabilities and their payments are made at the rate maintained on the payment date, our liabilities are not going to increase significantly,” he said.

However, Nepal Electricity Authority, which is facing a cumulative loss of Rs 28 billion, will suffer the most from the rising dollar as it has to pay to Khimti and Bhotekshi hydropower projects in US dollars.(Source:ekantipur)

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