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Brexit reverberations: Nepali Rupee plunges against the dollar

Gold prices jump Rs 3,000 per tola

Kathmandu, June 24, 2016: With the United Kingdom opting out from the European Union (EU), Nepali rupee has weakened by Rs1.24 against the US dollar on Friday. Gold price jumped over five percent in the domestic market.

Nepal Rastra Bank (NRB) had fixed dollar exchange rate at Rs 107.96 a dollar for Friday, however, dollar is being traded over 109 in Nepali commercial banks after the UK referendum results.

The fall of the rupee against the dollar is mainly due to devaluation of the Indian currency, with which the domestic currency is pegged. Indian rupee has plunged 96 paisa against the US dollar in the early morning trade following the UK referendum results.

Bankers say the direct impact of the UK referendum has particularly hit foreign exchange rates. “With Indian currency going down, there will be direct impact on foreign exchange rates,” said Sashin Joshi, CEO of Nabil Bank.

With the dollar getting stronger, the country’s import bill is expected to surge, while foreign loan servicing will continue to rise. Furthermore, according to Joshi, it will continue to put pressure on the country’s inflation. “As we are highly dependent on imports, there will be increased inflationary pressure,” he added.

Nepal’s central bank officials confirmed they were closely watching the developments following the results.

Nar Bahadur Thapa, chief of the research department at Nepal Rastra Bank, said since Pound has fallen against the dollar, Nepali investments–those by central bank, commercial banks and individuals—made in the British Pound has weakened by around 11 percent. “However, I don’t think we’ve significant exposure in Pound,” he said.

Another impact of the Britain’s exit has been felt in the domestic bullion market. Gold price have soared to Rs 59,000 per tola (11.66 gm) in the domestic market– its highest in more than two and a half years on Friday–in a dramatic indication of worldwide panic over Britain’s exit from the EU.

The precious yellow metal’s price jumped by Rs 3,000 on a single-day on Friday.

The domestic market had recorded an all-time high of Rs 63,300 per tola on August 28, 2013 when gold price jumped Rs 3,400 per tola overnight. The precious yellow metal that was traded at Rs 57,000 per tola on the opening day on Sunday had slipped to Rs 56,000 by Thursday.

Tej Ratna Shakya, former president of Federation of Nepal Gold and Silver Dealers’ Association, said gold prices in the international market gained on safe-haven buying due to worldwide panic over Britain’s exit from the EU. “As the European markets remain uncertain, gold prices have been fluctuating.”

According to Reuters, gold soared as much as 8 percent to its highest in more than two years on Friday after Britain delivered a shock vote to leave the European Union, leaving investors seeking protection in form of the precious metal.


By Sangam Prasain