Asked by: Safietou Sajjad
business and finance currencies

Is rupee devaluation good for economy?

Last Updated: 21st February, 2020

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Currency devaluations can be used by countries toachieve economic policy. Having a weaker currency relativeto the rest of the world can help boost exports, shrink tradedeficits and reduce the cost of interest payments on itsoutstanding government debts. There are, however, some negativeeffects of devaluations.

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Furthermore, does devaluation help the economy?

Advantages of devaluation Exports become cheaper and more competitive to foreignbuyers. Higher exports and aggregate demand (AD) can lead to higherrates of economic growth. Devaluation is a lessdamaging way to restore competitiveness than 'internaldevaluation'.

Secondly, will India devalue its currency? In 1991, India still had a fixed exchange system,where the rupee was pegged to the value of a basket ofcurrencies of major trading partners. As in 1966,India faced high inflation and large government budgetdeficits. This led the government to devalue therupee.

Additionally, how does devaluation affect the economy?

Exports cheaper. A devaluation of the exchange rate will makeexports more competitive and appear cheaper to foreigners. Thiswill increase demand for exports. Also, after a devaluation,UK assets become more attractive; for example, a devaluationin the Pound can make UK property appear cheaper toforeigners.

Why is India devaluing its currency?

India devalued Rupee for the first time in 1966.Devaluation of Indian Rupee in 1966 despite governmentattempts to obtain a positive trade balance, India suffereda severe balance of payments deficits since the 1950s. Because ofall these reasons, Government of India devalued Rupee by36.5% against Dollar.

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