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Sharp drop in Indian rupee

Nepal faces pressure to change currency policy
NEW DELHI. Feb 6: Nepals government is under pressure to delink its currency from the Indian rupee after the giant neighbour's currency plumbed new lows, analysts and officials said on Tuesday, reports Reuter.
But officials said ending the fixed rate regime could spell political trouble for the Nepali Congress-led centre-right coalition government as it could lead to a rise in the price of consumer goods.
Businessmen warned that business could be hit as the currency market turned uncertain.
The exchange rate between the two neighbours is fixed at 160 Nepali rupees to 100 Indian rupees, and Nepal's central bank has revised its US dollar rates to avoid a flight of capital that may result from the fixed rupee .
The dollar opened sat# 60.30 rupees on Tuesday, two rupees higher than Monday's closing rate.
"We have to maintain some parity for the dollars. Otherwise. our dollars fly to India across the open border." Nepali Finance Minister Ram Sharan Mahat told Reuters In Kathmandu. Recent weeks have been volatile for the Indian rupee, and through that ■ the Nepali currency.
Thakur Nath Pant, a research scholar at the Centre for Policy Research and Analysis ICPRA). said the Kathmandu government had two alternatives to consider — free up the Nepali rupee from Indian currency or revalue the Nepali currency's fixed exchange rate with the Indian rupee.
Tn the present situation the only alternative is to leave the Indian rupee free in the open market." Pant told Reuters, referring to the Indian rupee's fluctuating value.
Mahat said the government was reviewing the situation. "We are studying the pros and cons of different alternatives." he said.
A finance ministry officials said freeing the Nepali rupee from its Indian counterpart could jack up import prices and pose .political problems for the coalition government.
. It would also hit exports, said the official, who did not want to be named.
India accounts for 29 per cent of the Himalayan kingdom's foreign trade, and more importantly, Nepal has a staggering 304 million dollar trade deficit with its giant neighbour, linked to and annual import bill worth 363 million dollar.
Tuesday's fall of the Nepali rupee was the second In less
than a week, and marked a 15 per cent fall against the dollar since the coalition government was formed last
Nepali businessman expressed concern over the fall in their currency value and said it made business uncertain.
"The economy is heading towards a crisis and the government should lower customs tariffs to give relief to the consumers due to the depreciation of the rupee," said Gajananda Aggrawal. former president of Nepal Foreign Trade Association.
Inflation may be fuelled in New Delhi Reuter report says: The sharp drop in the value of the Indian rupee could fuel inflation and — combined with a liquidity crunch — squeeze near-term industrial growth, analysts said yesterday.
There will be a temporary setback in industrial production because of a sharp fall in • the rupee." YP Srivastava. Deputy Secretary General of the Federation of India Chambers of Commerce and Industry (FICCI), told Reuters.
The rupee hit a new low of 38.35 rupees against the dollar on Tuesday after finning to 37.30 earlier in the day. It
then recovered to 37.55 before easing slightly to 37.75.
"This could slow down industrial growth in the next financial year." said V Raghu-raman. Secretaiy General of the Associated Chambers of Commerce, adding that the government's tight money policy would exert further pressure on industrial growth.
"Industrial production will be about eight to nine per cent if fluctuation In the rupee and the liquidity crisis continues." Srivastava said, adding that the earlier estimates of growth of 10 to 12 Kt cent in 1995/96 (April-arch) might not be achieved. Indian industry grew by 8.4 per cent in 1994/95.
Analysts said that in the short run, the negative fallout' from rising import costs brought on by the weaker rupee would outweigh the stimulus of cheap exports because most Indian exports are import-intensive.
Indian firms have also complained the government's tight money policy is affecting their growth and investment decisions.
A survey by a top industry association on Monday said the liquidity crisis, inadequate power supply and capacity constraint were affecting industrial growth.