[Levin]

Vikram Khanna
Senior Columnist


......

the stimulus generated by the fiscal expansion overwhelm the restrictive effects of monetary tightening, and the bigger the fiscal side grows, the less effective monetary tightening becomes. The situation even reaches a point where interest rate increases lead to higher inflation because they raise the interest payments on government debt, which also act as a stimulus because they boost the income of those who benefit from the higher interest payments.

In simple terms, when rising fiscal deficits become the main source of higher inflation, raising interst rates won't solve the problem and may even worsen it.


https://www.straitstimes.com/opinion/fis...tion-fight