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Why do central banks raise interest rates to curb inflation?

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euronews.com

It's all going up: electricity, diesel, vegetables, the Internet, hotels, flights, and now, interest rates.The war in Ukraine, the on-and-off lockdowns in China, a persistent power crunch and disrupted production chains have bumped into a huge appetite for goods and services, upsetting the delicate balance between supply and demand and driving prices to record highs.In an almost synchronised manner, central banks from all around the world are rushing to raise their key interest rates in a bid to tame soaring inflation, which, much to their dismay, continues to break monthly records.

The European Central Bank (ECB) became one of the latest institutions to shift monetary policy, closing a long chapter of negative rates dating back to the worst years of the EU's sovereign debt crisis.Its counterparts in the United Kingdom, Sweden, Norway, Canada, South Korea and Australia have all taken similar steps in recent months, reacting to daunting inflation readings.

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