Devaluation and Inflation feed on each other.

Inflation and Depreciation feed on each other. How should the monetary policy be directed towards striking a balance between the two and going from there?

Depreciation and Inflation

Devaluation or Depreciation of a currency is lowering of the exchange rate of currency of one country in relation to currency of other country. The main reason of devaluation is inflation.

The objectives of devaluation may be:

1. To make commodity prices, especially the prices of farm products, rise in terms of domestic money or, at least, to check their further drop.
2. To favor the debtors at the expense of the creditors.
3. To encourage exports and to reduce imports.
4. To attract more foreign tourists and to make it more expensive (in terms of domestic money) for the countries own citizens to visit foreign countries.
5. To preserve the height of nominal wage rates or even to create the conditions required for their further increase, while real wage rates should ra...