Nepalese currency under pressure

Gold priced in Nepalese rupees hit a new record high per troy ounce earlier this month, at 56,000 Nepalese rupees per tola. After neighbouring India recently announced a rise in its gold import taxes from 2 to 4%, the Nepalese government had no choice but to raise its own gold import taxes in response, in order to avoid smuggling activities at its borders. The small Himalayan state is often forced to make political and economic adjustments depending on policy in Delhi. So gold import taxes have climbed from 1,750 to 2,680 Nepalese rupees. Sales of gold jewellery dropped in response. However, continuing weakness in the Indian and Nepalese rupees is helping to sustain high (local) prices for precious metals. The short-term outlook for the Indian economy is gloomy, as traders continue to desert emerging market assets in the face of growing deflation fears.

Last week the Indian government met gold and jewellery traders’ demands by reconsidering its plans to impose a new purchase tax on this sector. The Indian Ministry of Finance intended to impose a tax on registered as well as unregistered trademark products, but decided to drop this idea in the face of traders’ vehement protests.

However, increased import duties on gold and silver will remain. Higher import duties are weighing heavily upon many Indian gold traders, and gold demand has dropped significantly. Many business owners are struggling for survival. The government has increased taxes on precious metals in an effort to close India’s current account deficit.

Author: Roman Baudzus

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