What is the role of the central bank in managing inflation?

The central bank plays a crucial role in managing inflation by controlling the money supply and adjusting interest rates. When inflation is high, the central bank may raise interest rates to make borrowing more expensive and encourage saving, which can help reduce demand in the economy and lower inflation. Conversely, when inflation is too low, the central bank may lower interest rates to stimulate borrowing, spending, and investment, which can help boost demand and push inflation toward the target rate. The central bank also uses tools like open market operations and reserve requirements to manage inflation and maintain price stability in the economy.