What is the relationship between inflation and interest rates?

What is the relationship between inflation and interest rates?

Inflation and interest rates are closely linked. Generally, when inflation rises, central banks may increase interest rates to control it.

Why do central banks raise interest rates during inflation?

Central banks raise interest rates to make borrowing more expensive, which can reduce spending and slow down inflation.

How does this affect consumers?

Higher interest rates can lead to increased loan costs for consumers, affecting mortgages, credit cards, and other loans.

Is there a time when interest rates might decrease?

Yes, if inflation is low or the economy is slowing down, central banks may lower interest rates to encourage borrowing and spending.

Can you give an example of this happening?

Sure! After the 2008 financial crisis, many central banks lowered interest rates to stimulate the economy as inflation was low.