KATHMANDU, April 25: At time when Nepali traders were hoping to further build on recent rise in exports that they enjoyed in the European Union, a senior analyst at Standard Chartered Bank, India, has cautioned their expectations might not get fulfilled over the next five years.
“I do not think euro zone will come out of troubles it is facing now from recession and debt crisis for at least another five years. With Spain on verge of meltdown, the new wave of trouble is anticipated to hit the zone soon,” Dr Samiran Chakraborty, regional head of research at Standard Chartered India, said.
He even cautioned that the troubles in euro zone could further escalate India´s current account deficit, which already stands at 4 percent of GDP, exerting pressure on Indian currency. As Nepali rupee is pegged with the Indian currency, such outcome would cause Nepali rupee to depreciate further, rendering imports expensive.
Speaking at a talk program organized by Standard Chartered Bank Nepal, Dr Chakraborty also noted that the euro zone crisis could further jack up commodity prices as well.
“And given that the countries in South Asia are dependent on imported commodities to fulfill industrial raw materials need, that could fuel inflation,” he said.
But if you invest on commodities like gold, you might enjoy better return, he said, forecasting that prices of gold could touch US$ 2,000 per troy ounce by the end of 2012 from present rate that hovers around US$ 1,650 troy ounce.
While two solutions being looked upon, that is slashing fiscal deficit or issuing euro bond guaranteed by best debtor, Germany, facing tough political resistances, he even anticipated EU might fail to hold itself as a union of countries in the present form.
Clearly, the implications of euro zone crisis are huge for countries in South Asia, and pose serious challenges to the central banks and policy makers here, said Dr Chakravorty, adding that the countries in the region will have to adjust their policies accordingly to overcome the looming troubles.