Central bank selling dollars to buy Indian rupeesNepal Rastra Bank, the central monetary authority of the country, is depleting its foreign currency reserve to purchase Indian currency and finance the ever-increasing import of goods from the southern neighbour.
Nepal Rastra Bank, the central monetary authority of the country, is depleting its foreign currency reserve to purchase Indian currency and finance the ever-increasing import of goods from the southern neighbour.
According to the central bank, the volume of Indian rupee purchase grew by 24 percent during the first three months of the current fiscal year, owing to the ballooning trade deficit with India.
During the review period that ended in mid-October, the central bank sold $1.02 billion, 16 million euros, 20 million pounds and 10 billion Japanese yen to purchase INR75.57 billion from various commercial banks in India.
The central monetary authority had offloaded $900 million and 40 million euros to purchase INR60.93 billion during the corresponding period of the last fiscal.
Nepal’s trade deficit with India is widening rapidly as the country’s imports far exceed its exports to the southern neighbour, a central bank official said.
“As a result, the amount of Indian rupees that goes out of the country is much higher than what comes in and we are forced to purchase Indian currency to offset such deficit,” said Bhisma Raj Dhungana, the executive director and chief of the Foreign Exchange Management Department at the central bank.
As of the first three months of this fiscal year, Nepal’s trade deficit with India stands at Rs223 billion, up by 42 percent compared to the same period in the previous year. The trade deficit stood at Rs156.8 billion in the first three months of the last fiscal year.
Imports from India increased by 40.8 percent to Rs236.12 billion in the first three months of the current fiscal year compared to the corresponding period of the last fiscal year. Exports increased by 20.2 percent to Rs13.16 billion in the review period. Despite a significant growth in the country’s exports, the rate of increase in imports dwarf Nepal’s exports compared to the humongous import basket.
In the meantime, the foreign exchange reserve of the country maintained at the central bank decreased to $9.34 billion from $9.74 billion at the beginning of the fiscal year.
Dhungana says the depletion is not significant. “If Nepal maintains a healthy reserve of US dollars via remittance, tourism income and foreign direct investment, we can afford to purchase Indian rupees using the dollars,” he said.
“However, if the sources of US dollars start drying up in the future, it will hit our macroeconomic stability.”