Why does cutting interest rates boost inflation?
When interest rates decrease, borrowers will borrow more because it’s cheaper now… thus more supply of money, hence purchasing power decreases by inflation… AND, when interest rates decrease, savers will save no more, and consume or invest instead, because it’s considered as a lost when you save and receive little interest profits… Thus, even more money supply, that mean there will be too much of cash circulating in the economy, and when more cash, the cash tends to loose its value by inflation…
