WELCOME

DEPRECIATION OF RUPEE AND ITS IMPACT ON NEPAL'S ECONOMY

Presented byLt. Harish Shahi

z "Depreciation " refers to a decrease or loss in value, as because of age, wear, or market conditions or Reduction in the purchasing value of money. The value of the rupee in terms of dollars will depend over time on the erosion of its value in terms of purchasing power internallyThe depreciation of domestic currency against major convertible currencies is not due to the weakening of Nepali economy, but rather due to the weakening of Indian Currency (INR) with which the NPR is pegged at 1 INR=1.60 NPR. Being an import-based economy, the depreciation of Nepali rupee against dollar makes a huge impact on the economy Increment in Dollar price will be beneficial to foreigner who are visiting in Nepal and want to., Because of increment in price will increment there purchasing power. But in Nepal Import is higher than Export so that overall Nepal is not beneficial in any terms

INTRODUCTION

More and more rupee brought in our country and dollars are sold.

More and more rupees are soldand dollars are brought

Rupee Appreciates

Rupee Depreciates

Depreciation of Rupee

To highlight about the depreciation of Rupee against dollar and its Impact on

Nepal's Economy

AIM

Background Relation of Nepalese Rupee with Indian Currency Reasons for Slump in the value

Basic law of Economics Price of Crude Oil Performance of dollar with Respect to other currencies Volatility in the Equity market Effects of Equity market problems on investors Condition of import bill

Precaution measures Impact on Nepal's Economy Conclusion

]]

SCOPE

BACKGROUND Nepal ranks among the world's poorest countries, with a per capita income of around $1,400 in 2013. In 2012, it was estimated that 25% of the population was below the poverty line

Agriculture remains Nepal's principal economic activity, employing over 73% of the population and providing about one-third% of GDP

Nepal mainly imports oil, gold, iron and steel, clothes, pharmaceutical products, cement, electronic appliances, food and vehicles. Nepal’s main imports partner is India

BACKGROUND

Relation of Nepalese Rupee with Indian Currency

India is the main business partner of Nepal. Above the five hundred billion rupees import if done by Nepal, there is always the two-third portion of possession of India remains The fixed exchange rate of Nepalese currency with the Indian currency The Indian Rupee has depreciated to an all time low with respect to the US Dollar. On 28th August 2013, the Indian rupee had gone down to 68.825 against the Dollar but the situation was somewhat revived by the Reserve Bank of India that decided to open a special window for helping state owned oil companies

Reasons for Slump in the value of Nepalese Currency

Basic Law of Economics: As per the rudimentary laws of economics if the demand for USD (US $) in India exceeds its supply then it’s worth will go up and that of the Indian Rupee ( INR) will come down in that respect

Price of Crude Oil: All over the world, the price of oil is given in dollars. This implies that as and when the demand for oil increases or there is an increase in oil prices in the global market, there also arises a need for more dollars to pay the suppliers. This also results in a situation where the worth of the Rupees decreases significantly in comparison to the dollar

CONTD Performance of Dollar with Respect to Other Currencies: The central banks across Japan and countries in the Euro zone have been bringing out a lot of money and this has meant that both Yen and Euro have lost their value

Volatility in the Equity Market: The equity markets in India have been volatile for a certain period of time. This has put the FIIs into a dilemma as to whether they should be investing in India or not

CONTD

Effects of Equity Market Problems on Investors: Now if the INR and NRS becomes weak then it will affect the investors who are putting their money in India and Nepal. The exchange traded funds are also being redeemed as the global business fraternity is looking to cut down on risks

Condition of Import Bill: India’s import bill has been going up of late and most of this can be attributed to gold. This has also hampered India’s efforts to arrest the slide of the INR. Gold alone takes up more than 10 per cent of India’s import bill

PRECAUTION MEASURES Nepal has been maintaining a pegged exchange rate to the Indian rupee for a long time. The peg of NRs 1.60= IRs 1.0 has not been revised since 1993. Hence, the exchange rate with other currencies depends on the movement of the Indian rupee against convertible currencies

The central bank can do to influence the exchange rate of Nepali rupee vis-à-vis convertible currencies. That said, the fluctuations in exchange rate do affect current account balance (mainly trade balance and remittance inflows), inflation, debt payments, and dollar denominated obligatory transactions/investments in Nepal

EXCHANGE RATE

Impact on Nepal’s Economy Depreciating currency makes exports competitive, leading to rise in export earnings It will affect imports and might worsen current account balance depending on the level of remittance inflows, which have registered a slower growthThe rise in import bill will be reflected in the final prices of retails goods and services. Specifically, the rise in cost of petroleum imports will either lead to worsening of the already bad balance sheet of NOC or increase prices of petroleum fuel in the marketThere is an incentive to remit more money to Nepal when currency depreciatesNepal Electric Authority will have to make larger payments to companies -Bhote Koshi and Khimtee hydropower projects- with which it has power purchase agreement in dollars

CONCLUSION

In a nutshell, the Nepal’s exports will have to be provided the momentum in quantity while the import should be reduced drastically, which is not possible due to the increased import of consumer goods, development and construction materials. Thus, we Nepali people will suffer from this devaluation.  The depreciation will have in the short term positive impacts for the remittance economy. But in the longer term it will not have the good impact. So that, the concerned authority should think deeply keeping these effects in their mind and should take a giant step. However, the country will benefit from the remittances and exports of goods

?

THANK YOU!!