Below text is taken from CFAI.
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on one hand they have been talking about long-term and short term. and on other hand they just put a statement out about raise interest rates… Now which one is this? long term or short term?
if someone can elaborate this concept, it would be good.
The goal of reducing the interest rate is to stimulate the economey but the capital flow will flee away in the long run If they start feeling that the currency depreciation(high inflation) due to lower interest rate keep falling So the goal of this policy will not be achieved if there is no balance to keep economy in balanced.
It’s difficult to draw a conclusion on how interest rates affect currency movement. There are always two opposing forces coming into play, the final outcome depends on the market.