09/11/2026
Why do central banks raise interest rates when inflation is high?
Because higher rates can reduce borrowing and spending across an economy — taking some pressure off demand and prices.
But rates aren’t their only tool. Central banks can also use their balance sheets and banking-system liquidity operations to influence broader financial conditions.
And there’s an important limitation: monetary policy can’t directly fix every supply-side cause of inflation.
That’s what makes the job complicated.
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