During the time of steep Rupee depreciation and interest rate hike in India, we wrote many small articles criticizing these moves. Certainly these steps have helped contain the rising inflation – but at what cost?
Advanced globalization or new economy does not recognize these steps as did the old. Interest rate hike reduces the money supply and business profits. But the globalized new economy needs increased buying power or money supply for the growth and development. Increased buying power always results in inflation. But certainly farmers will get better prices, companies will show better results, investors will get better returns and the Government will get better Taxes.
Strong currency attracts global attention and investment but highly weakening currency will paint a gloomy picture to the economy. Current world economic thinking is growth oriented and it does not like any kind of financial crisis.