Intro: Lower interest rates tend to create upward pressure on inflation as they encourage greater bank lending, increase the incentive to spend money rather than hoard it, and discourage people from holding the currency as an investment. That said, given the multitude of forces at play, rate cuts are far from guaranteed to generate high…
Intro: Does currency weakness cause inflation or does inflation cause currency weakness? While it may appear that currency weakness causes inflation, the opposite is true. Declining export competitiveness and falling real interest rates resulting from higher inflation necessitate currency weakness. Contrary to economic theory, higher inflation prints can sometimes lead to short-term currency appreciation in…
Intro: Despite the almost universal belief that central bank interest rate cuts provide a boost to the economy, most of the time they have little-to-no stimulatory effect. Rate cuts usually just reflect prior changes in the real economy’s savings/investment balance, and typically provide little insight into future growth. The financial media is fixated on interest…