January 28: The import of silver has dropped sharply after the Nepal Rastra Bank (NRB) made it mandatory to keep 100 percent cash margin when opening a letter of credit (LC). NRB had made an arrangement to keep a cash margin when opening LC to import silver in mid-December. As a result, its imports have plummeted.
Before the provision of 100 percent cash margin to open the LC, silver worth more than Rs 2 billion used to be imported on a monthly basis. However, the data from the Department of Customs show that after the NRB's new arrangement, silver imports dropped to Rs 620 million between to mid-December to mid-January.
According to the data, the import of silver has been declining from mid-November. Silver amounting Rs 290 million was imported from mid-November to mid-December. Prior to this, silver worth Rs 2.5 billion was imported between mid-October to mid-November, Rs 3.51 billion between mid-September to mid-October, Rs 4 billion between mid-August to mid-September and Rs 2.62 billion betweenmid-July to mid-August. Silver worth Rs 12.57 billion was imported in the first six months of the current fiscal year.
Due to the recent increase in imports, the outflow of Nepal's currency has been massive while the inflow is low. As a result, foreign exchange reserves have been steadily declining. Accordingly, the central bank had made an arrangement to keep such margin when opening an LC for importing silver and other luxury items.
Lately, the import of silver in Nepal had been increasing. Silver worth more than Rs 10 billion was imported in the first three months of the current fiscal year. NRB then tightened its screws my amending the monetary policy after the first quarterly review.
President of the Federation of Nepal Gold and Silver Dealers Association Manik Ratna Shakya said that sufficient amount of silver could not be imported due to the provision of keeping margin while opening LC. He welcomed the tightening of silver imports at that time but said that it should not be done for a long time.
"Currently, Nepal's foreign exchange reserves are declining. Accordingly, the tightening of silver imports is practical," he said, "But it should be removed once the situation is comfortable."
Shakya said that there was a shortage of silver in the market after the decline in silver imports. "Despite the decline in silver imports, we were meeting the market demand with the silver reserves of the traders. However, the traders have now run out of stock," he said, adding "There has been a shortage of silver in the market for the last four to five days. Now it seems to be a challenge to meet the market demand."
Chairman Shakya said that the traders are not hiding the silver despite the shortage. "Despite the scarcity, we have been supplying the silver that we have. However, acknowledging this situation, the government should facilitate the import of silver," he said. Moreover, he said that silver must be imported to meet the market demand.