What is the relationship between interest rates and inflation?

What is the relationship between interest rates and inflation?

Interest rates and inflation are closely linked. Generally, when inflation rises, central banks may increase interest rates to cool down the economy.

How do higher interest rates affect inflation?

Higher interest rates can reduce consumer spending and borrowing, which may help lower inflation by decreasing demand.

Can you explain how this impacts my savings?

Certainly! Higher interest rates can lead to better returns on savings accounts, but they may also mean higher costs for loans.

What happens if inflation is low?

If inflation is low, central banks might lower interest rates to encourage borrowing and spending, stimulating economic growth.

Are there any risks to keeping interest rates too low?

Yes, keeping interest rates too low for too long can lead to excessive borrowing and potentially create asset bubbles.