a depr in local currency will lead a country to raise its interest rates. can someone explain why this will be so? (my understanding: by increasing local interest rates, it’ll attract investors from abroad (attracted by a higher int rate scenario)) am i correct? thanks
According to Saving -Investment Imbalance approach. When Investment > Saving => Current a/c deficit => DC depreciate => To attract capital to compensate savings deficits, DC must stay strong => provide incentive for government to raise interest rate.
thanks B_C. i thot the same.