What is the impact of inflation on interest rate policy?

What is the impact of inflation on interest rate policy?

The impact of inflation on interest rate policy is that it generally leads to an increase in interest rates. When inflation is high, central banks often raise interest rates to curb inflationary pressures and maintain price stability. Higher interest rates make borrowing more expensive, which reduces consumer spending and investment, thereby slowing down economic growth and reducing inflationary pressures. Conversely, when inflation is low, central banks may lower interest rates to stimulate borrowing and spending, thereby boosting economic activity.