Nepal Rastra Bank's rupee peg and remittance dependence

Nepal Rastra Bank has held the Nepalese rupee fixed against the Indian rupee since 12 February 1993, at a rate that has not moved since; its 2023/24 annual report confirms the peg held through that year even as the Nepalese currency moved against the dollar and other floating currencies in line with the Indian rupee's own fluctuations. The arrangement anchors prices for a small, landlocked economy that trades heavily with India, but it also means Nepal Rastra Bank imports Indian monetary policy by default and cannot use the exchange rate to cushion shocks that affect Nepal differently than India. What makes the peg sustainable despite chronic trade deficits is remittance income: money sent home by Nepalese workers abroad, mostly in the Gulf and Malaysia, has grown to represent one of the highest remittance-to-GDP ratios anywhere in the world, regularly financing most of Nepal's merchandise trade gap and keeping foreign-exchange reserves at levels well above import-cover thresholds the Bank itself tracks. That dependence cuts both ways: remittance-fuelled consumption has been a steady growth engine for two decades, but it also leaves Nepal's external position unusually exposed to labour-market conditions in Gulf economies rather than to developments in Nepal's own tradable sectors.