When the rate of growth of supply of money is greater than rate of growth of production it is called inflation. Inflation is the situation in which the prices of the goods and services increase and the money lose its purchasing power and in the developing economy it is a very common problem because they have a very little control on their money and the policy of government is as that creates inflation in the country because in the developing economy the pressure of population is very greater and for meeting their demand the government expenditure is very high and the revenue of the government is lower than its estimated expenditure and the gape filled by debts or issuing the currency which latter cause of inflation and the inflation affect the exchange rate of foreign currency because the purchasing power of the currency become decrease and its result that the excess INR will paid for obtaining one unit of the foreign currency. In countries with constant and high inflation, estimations made by using lower frequency data are not considered to be healthier than the monthly estimations. The financial decision units have very little information related to price conducts because of the ERPT’s high level.
KEYWORDS: Inflation Targeting, Exchange Rate dynamics, Anti-inflationary.
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