What is the role of central banks in inflation?

What is the role of central banks in inflation?

Central banks play a crucial role in controlling inflation by managing monetary policy, including interest rates and money supply.

How do central banks decide on interest rates?

They analyze economic indicators like inflation rates, employment levels, and GDP growth to set interest rates that stabilize the economy.

What happens if a central bank raises interest rates?

Raising interest rates typically cools down inflation by making borrowing more expensive, which can reduce spending and investment.

Can central banks prevent inflation completely?

While they can mitigate inflation, completely preventing it is challenging due to various external economic factors.

What tools do central banks use to control inflation?

Central banks use tools like open market operations, reserve requirements, and interest rate adjustments to control inflation.