Economy2023
Consider the following statements: Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes. Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means. Which one of the following is correct in respect of the above statements?
Explanation
The correct option is that both statements are valid, and Statement-II explains the rationale behind Statement-I. In the post-pandemic recovery phase, many Central Banks implemented interest rate hikes to curb rising inflation, assuming that by adjusting the cost of borrowing, they could manage consumer demand and stabilize prices. This relationship underscores the role of monetary policy as a tool for Central Banks to influence economic conditions and maintain price stability, which is a critical aspect of their mandate.