The Nepali Rupee (NPR) and the UAE Dirham (AED) exchange rate, commonly known as the Nepali Rate, is a vital economic metric influencing various financial activities.
Many factors, including the economy and trade between the UAE and Nepal, influence the Nepali Rate. For example, the UAE exported $505 million to Nepal, and Nepal exported $4.01 million to the UAE in 2021[1]. This trade balance affects the strength of each country’s currency.
If you’re an expatriate sending money to Nepal, a favorable rate could mean your family receives more Rupees for each Dirham you send. Understanding these trade dynamics can help businesses negotiate better terms for cross-border transactions.
What is the Nepali Rate in UAE?
The Nepali Rate in the United Arab Emirates refers to the exchange rate between the Nepali Rupee (NPR) and the UAE Dirham (AED). This rate is a crucial economic indicator that impacts various financial activities between the two countries.
With Nepal’s GDP (Gross Domestic Product) at $46.097 billion[2] and Dubai’s GDP at $467 billion[3] in 2023, the economic disparity between the two nations further underscores the importance of this rate. Let’s explore the factors that determine this rate.
How is the Nepali Rate Determined?
Understanding exchange rates is complex. However, three major types of factors affect the exchange rate. Let’s understand what factors play out in this case, the Nepali to UAE rate.
Economic Indicators
GDP Impact: The stark difference in GDP between Nepal and Dubai means that the two economies operate on different scales. A larger GDP often correlates with a stronger currency. So, when Dubai’s economy grows faster than Nepal’s, the UAE Dirham is likely to appreciate against the Nepali Rupee. This can make the Nepali Rate less favorable for people in Nepal but more advantageous for those in Dubai.
Inflation Rates: Inflation erodes the purchasing power of a currency. With Nepal experiencing a bit high inflation rate compared to UAE’s deflation, the Nepali Rupee’s value is effectively decreasing faster than the Dirham’s. This can lead to a weaker Nepali Rate, meaning you’d get fewer Dirhams for each Rupee. For expatriates sending money to Nepal, this could mean your family receives less when converted to Rupees.
Market Dynamics
Trade balances: Trade balance is a significant factor in determining the Nepali Rate. Trade deficits usually weaken a country’s currency, which was evident in the Nepali Rate following the announcement of the deficit.
Remittances: Regarding remittance, the UAE is a primary source of remittances. Monthly data over the past year indicates a strong correlation between remittance volumes and the Nepali Rate. When remittances are high, the Nepali Rupee tends to appreciate against the Dirham.
Foreign exchange market: These activities round out the list of market dynamics. The volume of daily trading involving the NPR and AED can lead to immediate fluctuations in the Nepali Rate. Large trades can cause the rate to spike or plummet quickly.
Political stability For instance, Nepal has faced political turmoil in recent years, including changes in government and protests. These events have led to immediate depreciation in the Nepali Rupee against the Dirham. On the other hand, the UAE’s stable political environment has contributed to the strength of its currency.
Speculative activities in the currency market: Hedge funds and institutional investors often trade large volumes of NPR and AED based on economic forecasts. These trades can lead to immediate and significant fluctuations in the exchange rate. For example, when a major hedge fund took a prominent position on the NPR last year, the rate saw a sharp decline within hours.
Upcoming financial regulations: Both Nepal and the UAE have financial reforms on the horizon, as announced by their respective governments. These reforms could range from changes in taxation to new trade policies. Stakeholders should monitor these regulatory changes as they can directly impact the Nepali Rate.
What Precautions Should You Take When Sending Money to Nepal?
Whether you are an expat, a business owner, or a currency trader, let’s see what care you should take while sending money to Nepal from the UAE.
Conclusion
The Nepali Rate is not a static figure but a dynamic outcome influenced by many factors. These range from basic economic indicators like GDP, inflation, and interest rates to market forces like trade balance and remittance flows.
External elements like political stability, speculative activities, and upcoming financial regulations also play a crucial role. A comprehensive understanding of these variables is indispensable for various stakeholders, including expatriates, businesses, and traders, to make informed financial decisions.
