Indian rupee (INR) has been sliding against the USD in recent months and Bhutanese ngultrum, because it is pegged to INR, is under pressure.

Losing 12 percent this year, INR is labelled by the Bloomberg as Asia’s worst performing currency.

According sources from Indian media, some of the loudest complaints have come from companies about the likely impact currency depreciation could have on corporate balance sheets.

This could be true in the Bhutanese context too.

Some of the Bhutanese manufacturing industries that rely on the raw materials imported from countries other than India are hit the hardest.

For instance, a manufacturing company in Phuentsholing import a chemical from Germany and it has to pay in USD. Since the company sells it products to India, it is not entitled to USD from the banks and the central bank.

With USD escalating against the ngultrum, the company has to resort to other means for USD. This has affected the competitiveness of the company at a time when the country is trying to promote exports.

The situations of manufacturing industries relying on the raw materials imported from the third countries and depending on the market in India has worsened because of the GST factor adding on to the foreign exchange. The Indian GST imposes about 18 percent of tax on all goods entering India.

Another pressure point arising from the depreciating ngultrum is the price of fuel. The country is dependent on petroleum price in India. India imports almost 80 percent of its fuel from the OPEC countries. This is evident from the rising fuel prices in the country.

This means that when the rupee depreciates, exchange rate passes through to fuel prices, resulting in energy trade deficit. This is because the country earns about Nu 12B from electricity export to India and in turn imports petroleum products worth Nu 7B or more on an average annually.

Deducting hydro loan repayment of about Nu 3B annually, the entire proceeds from the export of clean energy is negated in importing the dirty energy.

The most obvious task for the Reserve Bank of India, therefore, is to intervene in foreign-exchange markets by selling dollars. The Indian central bank has more than USD 400 billion in reserves. However, the move was interpreted as a panic reaction.

For travellers, refraining from purchasing USD by paying in ngultrum is prudent. If an individual plans to travel to Thailand, it is advisable to purchase Thai Bhatt and later exchange it in USD because the value of  USD 1 is equivalent to about THB 33.

According to the sources from Indian media, there are a lot of contributing factors for the rupee to experience this continuous depreciation over the last 12 months. One of the biggest reasons the rupee is falling at this rate is the rising price of crude oil, which is currently at a record USD 85 (INR 6,270) per barrel. This is mainly due to very rigid oil market where OPEC (The Organisation of the Petroleum Exporting Countries) leaders have signalled that they won’t be increasing their output.

Payment of crude oil is made in USD. A higher rate of crude oil means rupee is being converted to USD and, in turn, is strengthening the US currency.

Since the foreign exchange is just like any other economic activity driven by the demand and supply, all the factors indicate that USD is in demand. This is creating demand for USD in the market.

For Bhutan, a burgeoning current account deficit has become a big concern, especially after the rupee crises hit the economy. This has pitched questions over devaluing the ngultrum against rupee. Similarly, USD appreciating significantly over the INR is threatening the current account deficit in India. This has led to depreciation in the value of rupee since more INR needs to be utilised to pay for higher imports.

However, the latest trend shows that INR is gradually rising against the USD.

One USD was valued at Nu 63.65 in January this year, which decreased to Nu 65.66 in April. This further decreased to Nu 68.70 in July and reached Nu 72.30 in September.  As of Yesterday, the buying rate for USD, meaning if an individual wants to buy USD from a bank, the value was Nu 73.55 for USD 1. The selling rate, if a person wants to sell USD to bank, he or she could fetch Nu 71.35 for USD 1.

Tshering Dorji 


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