As Nepali rupee continues to weaken against the US dollar, there has been a sharp rise in the price of goods imported from third countries other than India. 

Nepal Rastra Bank (NRB) on Tuesday set the exchange rate at Rs 109.92 per dollar for Wednesday. The domestic currency had fallen to a low of Rs 110.04 per dollar on Monday. 

Ashok Kumar Shrestha, an importer of Chinese terry cotton garments, said they were facing a price increase of around 10 percent due to rising US dollar.  

According to NRB’s macro-economic report, footwear and garments witnessed highest price rise of 13.7 percent in mid-January this year from among non-food items. Besides weakening of domestic currency, supply disruption mainly pushed the prices, the report stated.  Not only garments, vehicles imported from third countries have also been expensive. “Vehicles we imported from South Korea have cost more due the falling rupee against the US dollar,” said Rupesh Sharma Bhatta, assistant general manager of sales and marketing at Laxmi Intercontinental, the authorised distributor of Hyundai in Nepal. “But we have not yet transferred the increased cost to our customers.” 

According to him, when domestic currency depreciates it not only increases purchasing price but also the tax they pay to the government, which ultimately passes on to the customers.  “We are in a wait-and-see mode over rising prices of vehicles,” said Bhatta. 

The Nepali rupee’s downswing has been attributed to a sharp fall in the value of the Indian rupee (IRs) against the greenback. Since the local currency is pegged with the Indian rupee, with a fixed exchange rate of Rs1.6 per IRs1, any fluctuation in the value of Indian currency has a direct impact on the Nepali currency. According to media reports, the plunge in IC is due to an increasing outflow of foreign investors from India’s capital market along with a rising demand for dollars from Indian importers. 

Arun Parajuli, chairman of Foreign Exchange Dealers Association of Nepal, said the Indian currency is likely to weaken further against US dollar, unless the Reserve Bank of India (RBI) intervenes. Lately, RBI has not been very keen on intervening on foreign exchange market allowing the market to determine rate. “My prediction is that Nepali currency would devaluate as low as Rs112 per US dollar,” said Parajuli.

As Nepali currency continues to weaken, importers maintain their profit on imported foods from third countries by further pushing prices.  Nepali traders import goods by opening Letter of Credit (LC) whose repayment cycle is normally three months. That means importers make payments within three months and the rising dollar puts them at a risk by then. 

 “We make payment of the imported goods after three months and if the exchange rate increases during that period, we have to pay higher prices,” said Keshave Raj Pandey, chairman of Trade Fair Committee Federation of Nepalese Chamber of Commerce and Industries. “In order to avoid such risk we have to set additional margin while selling the imported goods and ultimately the end users are marred by the rise in price level.”  Besides making goods expensive, the government’s external debt is also increasing as a result of the rising dollar. 

According to Financial Comptroller General Office, Nepal’s external debt rose by Rs16.86 billion during the first quarter of current fiscal year when domestic currency slipped to Rs104.09 per US dollar from Rs101.74 per US dollar.

“The debt might have risen more, a comprehensive report is yet to be prepared,” said a FCGO official.

However, remittance inflow is also on the rise as a result of a weak domestic currency because people here receive more in Nepali rupees. During the first six months of this fiscal, remittance inflow grew by 17.3 percent to Rs323.69 billion.