The central bank, however, has attributed the drop to strengthening of the Nepali currency during the period. “Otherwise, in dollar terms, our total foreign currency holding has increased by 1.6 percent,” said an NRB official. Data shows, Nepal in mid-December 2010 had total forex holding worth US$ 3.66 billion whereas it was US$ 3.61 billion in mid-July. [break]
NRB officials said the rise in reserve in dollar terms was largely due to better remittances inflow and also due to increase in grant and pensions receipt. The growth in reserve in dollar terms is good news for the central bank. However, NRB data also shows that the country´s inconvertible currency reserve, which includes Indian currency on which Nepal largely depends to finance the largest bulk of trade, plummeted by 6.8 percent, dropping from US$ 600 million in mid-July to US$ 559 million in mid-December.
In rupee terms, the decline in reserve of inconvertible currency is even sharper and stands at 10 percent. Such a decline was recorded even as the central bank purchased IRs 46.53 billion during the period, spending hard earned 1.02 billion USD for the purpose.
Clearly, this decline has to do with soaring trade deficit with India, the largest trading partner.
Of the total foreign currency holding in the banking system, convertible currency reserve was Rs 222.82 billion, whereas inconvertible currency made the remaining Rs 40 billion. Also, Rs 203.71 billion worth of total foreign currency reserve is held by the central bank, while the rest -- Rs 59.18 billion -- is with the commercial banks.
Data further shows that the Indian currency reserve with the commercial banks has dropped to Rs 3.95 billion in mid-December from Rs 5.31 billion in mid-July 2010. Concerned officials attributed the situation to the soaring demand of IC in the market and also tightening of its fresh supply by the central bank. As a result, the shortage of Indian currency has continued to prevail in the market since more than a year ago.
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