The devaluation of Indian rupee has caused the Nepali rupee to hit a record low of 93.79 against the dollar on Wednesday. The Nepali rupee which is pegged with its Indian counterpart has been sliding continuously following the freefall of the Indian rupee since the last 11 days. According to economists the sharp depreciation of the Indian rupee has been accelerated by slower growth and worsening public finances.
According to the records of Nepal Rastra Bank, the Nepali rupee has been devalued by 3.5 per cent in the past 11 days. The exchange rate was Rs 90.60 per 1 USD on 1 June. The weaker currency makes imports costlier and if the trend continues Nepal’s import based economy will
be adversely affected by a stronger dollar.
Advantages:
1. Nepalis living abroad sending remittance
2. Export could rise if inflation was reduced
3. Increase in customs revenue
4. Decrease in imports
Disadvantages:
1. Imbalance of payments
2. Inflation increases because of increased imports (fuel etc)
3. Payment of foreign loans
4. Power Purchase Agreement on electricity in USD will lead to a loss for the NEA
5. Nepal will lose out on its revenue from international business partners
6. Black market for dollars will thrive