How Inflation Affects Currency Exchange Rates
5paisa Research Team
Last Updated: 30 Apr, 2025 03:11 PM IST

Content
- Understanding the Basics: Inflation and Exchange Rates
- How Inflation Influences Exchange Rates
- Central Bank Response: Inflation, Interest Rates, and Currency Impact
- Short-Term vs Long-Term Impact
- Currency-Inflation Scenario: The Collapse of the Turkish Lira
- How It Affects Travelers, Businesses, and Investors
- Wrapping Up: Why Inflation Can Make or Break a Currency
Inflation and currency exchange rates sit at the heart of macroeconomic dynamics. While inflation signals how quickly prices rise and how much purchasing power declines, exchange rates tell us how one currency stacks up against another. These two forces often move together—and when inflation takes a turn, exchange rates tend to react.
This relationship matters more than most realize. Whether you're traveling, running a business, managing a portfolio, or making policy decisions, shifts in inflation can directly influence a sovereign currency’s behavior in global markets—and with it, a country’s competitive edge.
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