Value of Ngultrum depreciates by two percent against USD over past one year 

Thukten Zangpo

Bhutan’s Ngultrum hit an all-time low against the US dollar, reaching Nu 84.85 in December 2024, which is a two percent depreciation over the past year. 

This drop in the value of Ngultrum raises concerns about the rising costs of imports and the increased burden of servicing Bhutan’s convertible currency (CC) debt.

The depreciation, however, presents opportunities for more competitive exports.

According to the Royal Monetary Authority (RMA), the Ngultrum has depreciated by 37.67 percent against the USD over the past decade, sliding from Nu 61.03 in 2014 to its current record low.

One USD was equivalent to Nu 82.13 in January last year.

The Ngrultrum’s decline is linked to its pegging with the Indian Rupee (INR), which has faced its own challenges against the dollar, driven by factors like global economic fragmentation, foreign portfolio investments, and volatile oil prices.

While the peg with the INR shields Bhutan from some currency risks, foreign currency debt remains vulnerable to depreciation challenges.

The Ngultrum has been pegged to the INR since 1974.

According to the RMA, the external debt and debt stock was less because of minimal depreciation of Ngultrum against USD in 2023 and 2024.

The CC debt stock and debt service increased by Nu 2.2 billion and Nu 31.3 million in the first two quarters last year. As of June, last year, the CC debt was at Nu 91.14 billion, equivalent to USD 1.09 billion. This represented 34.6 percent of the external debt.

Due to Ngrultrum’s depreciation, the import value from third countries to Bhutan, which stood at Nu 6.57 billion as of June last year, grew by Nu 2.69 million from January to June last year.

The country gained Nu 24.79 million in exports to third countries, which totaled Nu 7.1 billion during the same period.

Economists argue that a depreciating Ngultrum can benefit exporters but caution that it poses challenges for those pursuing overseas education and for foreign exchange reserves, especially when residents spend abroad.

With the pegging exchange rate mechanism, Ngultrum closely follows the INR.

According to the RMA, the INR reached 83.1 against the USD on August 17, 2023, peaking at 83.6 against the USD on June 21 2024. It breached the 83 mark on October 11 last year when it traded at 84.1 per USD amid concerns of a wider conflict in the Middle East, equity outflows, and oil prices. As a result, the INR to USD has been hovering around 83-84 mark.

To counter exchange rate volatility, the central bank of India, the Reserve Bank of India (RBI) proposed to regulate offshore electronic trading platforms to oversee rupee-linked derivative transactions. RBI is also looking into reversing the offshore currency forward markets, allowing people to trade in INR without undertaking any physical delivery of the currency.

On April 23 last year, the RBI amended Foreign Exchange Management Regulations 2024 for the foreign currency accounts by a person residing in India. This allowed equity shares of companies incorporated in India on international exchanges to be held in foreign currency accounts with a bank outside India.

The RBI also relaxed rules related to the mode of payment and reporting for non-debt instruments.

There are also report of RBI instructing some large commercial banks to not add their existing trading positions against the rupee. Similarly, banks were also instructed to handle trade with the United Arab Emirates to partially settle their trade payments using the rupee instead of the USD.

Since 2021, the exchange rate of Ngultrum against the USD has stabilised around Nu 74 to Nu 84.

The exchange rate remained at Nu 82.7 from third quarter (July to September) 2023 to second quarter (April to June) 2024, marking a period of stability.

However, this period also shows consistent depreciation, from Nu 72.9 in first quarter (January to March) 2021 to Nu 83.4 by second quarter of 2024.

In 2021, when RBI implemented measures to stabilise the INR in 2021, including increasing foreign exchange reserves and ensuring liquidity through repo rate cuts, the Ngultrum fluctuated between Nu 72.9 to Nu 83.4 against USD.