Letters

Central banks and interest rates

Economic activity is already being squeezed

Wed Sept 07 2022 - 00:03

Sir, – Central banks see their main role as maintaining price stability. The only tool they have to limit inflationary pressure is to raise interest rates. An increase in interest rates raises the cost of borrowing, squeezing potential spending on other goods and services. But what if there are other factors at work that are already having that effect? Households will spend significantly more on energy over coming months, squeezing significantly, and painfully, their potential spend on other goods and services to a greater extent than a couple of percentage points on interest rates. Economic activity is being squeezed without any further increase in interest rates.

If all you have is a hammer, have a good look around before you hit that nail. – Yours, etc,

PADRAIC O’CONNOR,

Mount Merrion,

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Co Dublin.