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When inflation is high, what do central banks often do with interest rates?
Updated: 11-Apr-2025

They increase interest rates. When inflation rises too quickly, central banks like the RBI or Federal Reserve raise interest rates to cool down spending. Higher rates make loans more expensive and savings more attractive. This reduces money circulation, lowering demand and helping stabilize prices.

It’s a key tool of monetary policy. But raising rates too fast can slow down the economy and hurt growth, so it must be done cautiously. Managing inflation is a balancing act between controlling prices and sustaining economic momentum.

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