Opinion | Is the peg to INR still a safe harbour?
Summary
Nepal's fixed exchange rate peg of 1.6 to the Indian Rupee has provided economic stability but now faces challenges as the country prepares to graduate from LDC status by 2026. The policy's inflexibility impacts export competitiveness and monetary sovereignty.
Key Points
- Nepal has maintained a fixed currency peg of 1.6 NPR to 1 INR since 1993, ensuring economic stability through strong trade and remittance ties with India.
- The peg supports Nepal’s trade-dependent economy and remittance inflows, stabilizing purchasing power for many families.
- However, the fixed peg limits Nepal's monetary policy autonomy and may contribute to an overvalued currency, undermining export competitiveness.
- Experts suggest a gradual move toward a managed float or trade-weighted basket peg to enhance economic resilience as Nepal transitions from LDC status.
