KATHMANDU, Oct 19: The surge in the value of the US dollar is reverberating through the Nepali market, with significant implications for consumers. According to the Nepal Rastra Bank (NRB), on Tuesday, the exchange rate for one US dollar reached Rs 133.55, a slight increase from Rs 133.54 on October 24.
A robust US dollar often results in elevated prices for goods consumed by the Nepali populace. Given Nepal's import-oriented economy, these currency fluctuations are poised to influence the market and consumers alike. A strengthened US dollar weakens the Nepali currency, with consequential impacts on the broader economy. This dynamic can be a boon for foreign remittances but leads to a rise in the cost of imported products.
Remittance inflows pose Dutch Disease risk in Nepalese economy
Notably, the exchange rate, which had dropped to Rs 126.25 on August 3, has rebounded. Global demand for the US dollar has surged, drawing investors and driving up its price. Investors worldwide consider the US dollar a safe-haven asset, particularly during periods of increased risk in other sectors. The heightened global demand for the dollar has consequently driven up its value, resulting in a devaluation of the Nepali currency.
Nepal maintains a fixed exchange rate with the Indian rupee. Thus, fluctuations in the value of the Indian currency directly affect the Nepali rupee. While a stronger US dollar may benefit the remittance inflow, it can have adverse effects on countries like Nepal, heavily reliant on imports from abroad.
As the Nepali rupee weakens in contrast to the strengthening US dollar, imported goods become more expensive. Officials from the National Bank of India have stated that an increasing US dollar price also raises the cost of goods imported from third countries (excluding India), contributing to market inflation.
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