This refers to a phenomenon wherein the trade balance of a country worsens following the depreciation of its currency before it improves. Generally, any depreciation in the value of a currency is expected to improve the economy’s overall trade balance by encouraging exports and discouraging imports. However, this may not happen immediately due to some other frictions within the economy. Many importers and exporters in the country, for instance, may be locked into binding agreements that could force them to buy or sell a certain number of goods despite the unfavourable exchange rate of the currency.
Published - December 20, 2018 12:15 am IST
