DefinePK

Abstract

This study explored the relationship between foreign exchange & inflation for the period from 2000 to 2023. During this period, the Pakistani economy faced different periods of economic growth as well as recession. Particularly the global financial crisis from 2008 and the COVID-19 period which started in 2019 and still it shocks are still being realized by Pakistan's economy. In this study, we have focused on the relationship among the underlying factors like exchange rate, interest rate, import, export, and COVID-19 as the possible factors affecting inflation. The results of this study the independent variables show the exchange rate shows a significant relationship with inflation except the exchange rate. The interest rate shows a significant relationship with the interest rate 10 per cent significance level. The imports show a positive significant relationship with the dependent variable at a 5 per cent significant level. The exports show a negative relationship with inflation at a 5 per cent significant level. Therefore, it is pertinent to suggest that in order to control inflation the dependence on costly imports should be reduced while the exports should be encouraged so that the resulting increase in foreign exchange would reduce the inflation in the country. Similarly, the central bank can play its role slash the interest rates to control the inflation in the country.