Is the peg to INR still a safe harbour?

As Nepal prepares to graduate from Least Developed Country (LDC) status in 2026, this article examines the long-standing fixed exchange rate (1.6) between the Nepalese Rupee (NPR) and the Indian Rupee (INR).

Summary

The column explores the “monetary dilemma” facing Nepal: while the peg provides an essential anchor for trade and cushions against inflation, it simultaneously restricts monetary sovereignty and potentially hinders export competitiveness.

Key Discussion Points:

• The Economic Lifeline: How the peg facilitates remittances and provides a stable environment for Indian foreign direct investment (FDI).
• Structural Costs: The loss of independent interest rate policy and the impact on the real effective exchange rate (REER).
• Comparative Lessons: Drawing insights from the currency strategies of Bhutan, Hong Kong, and the cautionary tale of Argentina’s 2001 breakdown.
• The Path Forward: Proposing a transition toward a managed float or a trade-weighted basket peg to ensure long-term economic resilience.

Read the full article at The Kathmandu Post