Answer to Question #137742 in Macroeconomics for Michael Kwowove Didongo

Question

If a country's central bank reduces the monetary policy rate significantly, but unable to reflect a reduction in interest rate, What could be the possible reason? Thanks

Answer 1

The reason to why the central bank is unable to reflect a reduction in interest rate after reducing the monetary policy rate is that there could be higher inflation leading to consistency of the supply of money in the economy.

With an increase in price level for goods and services most likely because of pandemics such as drought s and floods ,there arises increased demand.This results into higher inflation