The pinch of continued depreciation of the nepali rupee is hurting nepali economy. This has renewed the debate on nepal’s currency policy: whether to leave the Nepali currency pegged on the Indian Rupee, or to just devalue it to reflect the current realities asNepal imports most of the daily necessites and industria raw material and the exportable surplus is very low.The Corporate Weekly this week spoke to economists to gather their views on the debate. Excerpts:
Prof Dr Navaraj Kandel
Central Department of Economics, Tribhuvan University
The most prominent impact of the increasing value of the US dollar against the Rupee would be a sharp rise in the price of imported goods. The tendency of businessmen in countries like Nepal is to increase the prices when the value of dollar rises but to make very small reduction in prices when the dollar devaluates. This leaves the consumer victimized. Therefore, it is better to leave our currency pegged as we import most products from India and this pegged policy gives us a very stable market.
Prithvi Raj Ligal
Former Vice-Chairman, National planning commission
Nepal has deeply rooted economic relations with India and has pegged its currency with India’s so that there is stability in the currency. The peg to maintain smooth trade and commercial relations with the world at large. Despite many informal trade relations with India, our market remains stable thanks to the peg. However, according to the IMF, in comparison to the Indian currency in the past 3-4 years, the Nepali Rupee has devaluated by 15 per cent. Therefore, these policies have to be evaluated by comparing both countries’ currency values. However, the consistent devaluation of the Indian Rupee is definitely making market prices unstable, as businessmen have started setting prices of the imported goods according to their own forecasts of currency values in the immediate future.
Deependra Bahadur Kshetry
Former governor, Nepal Rastra Ban k
It should not be debated whether the currency has to be pegged or not. The debate, rather, should be about how to avoid such devaluation. Since Nepal Rastra Bank has already made it clear that it will not remove the peg, and since our economy is very fragile at this point, the country might face a great inflation if we remove the peg abruptly. The Indian economy has been working a lot to unwind this devaluation, therefore we will have to wait and watch till there is certain level of stability in the Indian Rupee. We should also try and increase our foreign currency reserve. If that is not possible we should try to maintain it at the current level.
