Rethinking Nepal’s fixed pegging policy for exchange rate reform

The Nepali rupee (NPR) has been pegged to the Indian rupee (INR) for a long time. The current fixed pegging of 100 INR to 160 NPR was established in 1993 and has been in practice for over thirty years now. The fixed exchange rate of 1.6 was determined based on the macroeconomic and historical factors of the two countries that were relevant at the time of peg establishment.

Many of those decision factors have now either changed or do not exist; however, the fixed pegging scheme continues to be in circulation the same way as it has been since the beginning. Surprisingly, Nepal appears to be in ‘no rush’ to reform the pegging policy , at least, for the foreseeable future.