HEADLINE NEWS THE RISING NEPAL (DAILY)

Experts fear NC devaluation amid global market changes

BY A STAFF REPORTER

Kathmandu, Sept. 18: If the value of Indian currency (IC) against the US dollar in India further depreciates tomorrow, economists, bankers and foreign currency dealers here do not decline a possibility of devaluation of the Nepalese currency against the green back.

However, the depreciation of IC will depend upon the value of stocks in the Bombay Stock market, which is determined by the New York Stock Exchange (NYSE), which opened after six days following the terrorist attacks on New York and Washington. Within the last seven days, the value of NC has been depreciated by one rupee. Considering the volatility of IC against the US dollar, the NC was devaluated at different period of time. Around 20 paisa was depreciated on September 9, and 80 paisa depreciated after the New York incident.

Instability of IC is the prime reason of devaluation of NC at the moment, says Prof. Guna Nidhi Sharma. Prof. Sharma - a monitary economist indicates the possibility of further decline in the NC due to instability of Indian currency. Everything depends on the New York Stock market. If the value of stocks at New York Stock Exchange goes down, its ripples will be felt worldwide and the Bombay Stock market will be greatly affected that will further intensify IC devaluation. Ultimately, NC will be forced to depreciate against the dollar. "We will have no choice at that time," says Prof. Sharma while talking to this daily. Its result will be too expensive for the Nepalese economy, he says.

However, Tula Raj Basyal, Spokesman of Nepal Rastra Bank (NRB) declines any such possibility of NC devaluation. There arises no question to devaluate the NC since the NRB has plenty of foreign currency reserve at the moment.

Till the end of Ashad 2058 Nepal Rastra Bank had a total of Rs. 105.17 billion worth of foreign currency reserve. Out of which 80.16 billion was convertible and remaining 25.1 billion was inconvertible. We have sufficient foreign currency reserves, he says. Regarding the depreciation by one rupee, he says, "It is short term phenomenon."

But the reality is different. According to FEDAN, NRB had to intervene by selling 22 million US dollars to the commercial banks yesterday.

B. B Shrestha, President of Foreign Exchange and Money Dealers' Association of Nepal (FEDAN) does not see any possibility of further devaluation of the Nepalese currency. The price of IC was Rs 48.25 against a dollar Monday. But the arbitrage gap between IC and NC is just ten paisa. This is very insignificant to trigger devaluation, economists say.

But given the present situation at the New York Stock market Shrestha hopes there will be no such adverse impact in the world market.

Pramod Rijal former chairman of FEDAN also speaks in a similar vein. He says the possibility of devaluation is very thin. But one cannot predict it, he says.

It is to be noted that the NC was devaluated to Rs 76.10 from Rs 74.10 against the US dollar in the last seven days.

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