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The Relationship between Interest estimate and Exchange ramble in India Pradyumna Dash Introduction The theoretical as rise as empirical relationship between the following dictate and interchange rate has been a debatable issue among the economists. concord to Mundell-Fleming model, an development in touch rate is necessary to modify the give-and-take rate depreciation and to curb the inflationary obligate and thereby helps to avoid many adverse economic consequences. The high-pitched use up rate policy is considered important for several reasons. Firstly, it provides the cultivation to the market place about the authorities resolve not to part with the cunning switch over rate movement that the market expects given the solid ground of the economy and thereby quail the inflationary expectations and prevent the heavy-handed cycle of inflation and induce rate depreciation. Secondly, it raises the attractiveness of house servant financial assets as a r esult of which capital influx takes place and thereby limiting the exchange rate depreciation. Thirdly, it not only reduces the take of national aggregate demand notwithstanding also improves the counterbalance of payment position by reduce the level of imports.

hardly the East Asian currency crisis and the mishap of high saki rates policy to stabilize the exchange rate at its desirable level during 1997-1998 have challenged the believability of raising interest rates to defend the exchange rate. Critics vie that the high interest rates imperil the ability of the domestic firms and banks to pay tail end the external debt and thereby reduce the hazar! d of repayment. As a result, high interest rates continue to capital outflows and thereby depreciation of the currency. The exchange rate regime in our agricultural has undergone a significant change during 1990s. Until February 1992, exchange rate in India was fixed by the Reserve aver of India. Thereafter a dual exchange rate arranging was adopted during sue 1992 to Figure1: February 1993 which also came to an end and...If you want to progress to a good essay, order it on our website: OrderCustomPaper.com

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