What happens when the inflation is decreasing, to the exchange rate?
As inflation is decreasing, the cost of producing the goods will decrease and this in turn will make our exports cheaper as compared to other countries producing similar goods.
Increased exports will induce more interests into Indian Currency and thus it will Appreciate.
But if I think on other lines,
As Inflation decreases, RBI will further reduce it's Interest Rates, ie Repo to spur growth.
Once our Interest Rates decrease, Global investor will not want to invest here and take their money away.
This, on the Contrary will Depreciate our currency.
These 2 lines of thought are a bit confusing.
Can someone will clear understanding the relation between:
and Exchange Rates
explain how to think?