Weakening rupee likely to affect festive market

August 22, 2019

The Himalayan Times, August 22, 2019

Traders are wringing their hands as the notable depreciation of Nepali currency vis-à-vis US dollar in the recent months could affect the festive season.

The stronger dollar is likely to make imported goods dearer in the local market.

Compared to the exchange rate of the US dollar for Thursday, Nepali currency has depreciated by Rs 4.56 vis-à-vis US dollar from July 17, the beginning of 2019-20 fiscal year. On July 17, each US dollar used to fetch Rs 110.24. According to the exchange rate of Nepal Rastra Bank, per dollar rate for Thursday has been set at Rs 114.80.

As traders generally open letters of credit to import goods targeting the festive season one-and-a-half months prior to the Dashain festival, the appreciation of US dollar will certainly affect the festive market, as per traders.

“Nepal is an import-based economy and majority of goods for festive season have to be imported. As Nepali currency is constantly weakening against the US dollar, the Dashain-Tihar market will definitely be affected,” said Rajendra Malla, senior vice-president of Nepal Chamber of Commerce (NCC).

However, officials at the Nepal Rastra Bank (NRB) said that the rise in value of US dollar may not have severe impact on inflation ahead of Dashain and Tihar as Nepal’s import is highly concentrated with India and China whose local currencies are stable.

Stating that the price of goods will be determined based on the currency that a trader uses to purchase foreign goods, Laxmi Prapanna Niraula, spokesperson for NRB, said “If traders are purchasing goods in local currencies of India and China, this might not have much impact on price. However, if they are purchasing goods in US dollars, the prices of a few imported products will be affected in the domestic market.”

Owing to the depreciation of Nepali currency over the years, Nepal’s import is highly concentrated with India in recent times as imports from the southern neighbour are comparatively cost-effective. Nepal carries almost two-thirds of its imports from India.

Niraula said that implementation of various provisions introduced in the Monetary Policy for 2019-20 targeting the market will ensure that inflation will remain under control in the days to come.

Meanwhile, consumer rights activists have demanded stringent market inspection ahead of the festive season. “Traders are always looking for ways to raise price of goods. But they shouldn’t be allowed to raise price of goods arbitrarily in the name of stronger US dollar,” said Madhav Timalsina, president of Consumers’ Right Investigation Forum.