How does rupee depreciation cause inflation?

Depreciation reduces the value of a country’s currency when compared with the currency of other countries. Depreciation discourages imports because the imported goods become more expensive due to reduction in the value of currency. As the goods become more and more expensive it leads to inflation. You can read about the Balance of Payment Crisis, 1991 – Causes and Measures to Control it in the given link.

Further readings:

  1. Forex Reserves – Meaning, Importance, Advantages (Notes for UPSC IAS exam)
  2. New Economic Policy of 1991 – Objectives, Liberalisation, Privatisation, Globalisation

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