How expansionary monetary policy effect the current account?

Answer 1

Expansionary monetary policy typically lowers interest rates, which can lead to a depreciation of the national currency. A weaker currency makes exports cheaper and imports more expensive, potentially improving the current account balance by boosting export demand while reducing import consumption. However, if the policy results in increased domestic consumption and investment, it may also lead to higher imports, which could counteract some of the positive effects on the current account. Overall, the net impact depends on the relative changes in exports and imports.