Another tool of monetary policy is the interest rate. To stabilize the market when inflation, the central bank will increase interest rates, depositors in the bank will earn higher interest. So instead of investing in business or other projects, they tend to invest more in the bank. Just like that, the amount of cash in circulation in the market fell. Meanwhile, as well as the effect of the above tools, reducing capital investment requirements, reducing aggregate demand and prices, led to the final result is to reduce the inflation rate.
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