How do interest rates affect inflation?

In general, as interest rates are lowered, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase. The opposite holds true for rising interest rates. ... With less spending, the economy slows and inflation decreases. read more

Inflation and interest rates are often mentioned in the same breath, and this is because the two are closely related. In the United States, baseline interest rates are set by the central bank, the Federal Reserve Bank also known as the Fed. read more

In low inflationary situations; the interest rate is reduced. A fall in interest rates will make borrowing cheaper. Hence, borrowing will increase and the money supply will also increase. With a rise in money supply, people will have more money to spend on goods and services. read more

Under a system of fractional-reserve banking, interest rates and inflation tend to be inversely correlated. This relationship forms one of the central tenets of contemporary monetary policy: central banks manipulate short-term interest rates to affect the rate of inflation in the economy. read more