What role do central banks play in setting interest rates?

What role do central banks play in setting interest rates?

Central banks manage a country's currency, money supply, and interest rates to promote economic stability.

How do interest rates affect inflation?

Higher interest rates typically reduce inflation by discouraging borrowing and spending, while lower rates can stimulate it.

Can you explain how central banks decide to raise or lower interest rates?

Central banks analyze economic indicators like inflation, employment, and GDP growth to make informed decisions on interest rates.

What are the potential risks of low interest rates?

Low interest rates can lead to excessive borrowing, asset bubbles, and may encourage risky financial behavior.

How do central banks communicate their interest rate decisions?

Central banks often use press releases, reports, and press conferences to communicate their decisions and rationale to the public.