IMPACT OF INTEREST RATE & INFLATION RATE ON EXCHANGE RATE OF PAKISTAN

Abstract

One of the most important measures of a nation's economic development is its exchange rate, and its volatility has a big influence on global trade. The current study examined how interest rates and inflation affect exchange rate volatility.

rate in Pakistan. A multiple regression model has been applied to analyze the annual data used for the period from 2012 to 2016 to estimate the relationship between the variables. According to the study's findings, the exchange rate has a substantial inverse relationship with both inflation and interest rates; as these variables rise, the exchange rate falls, and vice versa. High interest rates cause inflation to rise, which in turn causes volatility in the exchange rate.