How does a central bank manage inflation?

A central bank manages inflation through various tools and policies. Firstly, it may control interest rates by adjusting the cost of borrowing for commercial banks. Higher interest rates discourage borrowing and spending, reducing aggregate demand and thus curbing inflation. Conversely, lower rates promote borrowing and economic growth. Secondly, central banks may implement open market operations, buying or selling government securities to influence the money supply. By purchasing bonds, they increase money circulation, stimulating economic activity and potentially fostering inflation. Alternatively, selling bonds reduces money supply and dampens inflation. Additionally, central banks sometimes enact reserve requirements, mandating commercial banks to hold a certain percentage of customer deposits as reserves. Increasing reserve ratios tightens lending capacity, reducing money supply and curbing inflation. Lastly, central banks may issue guidelines and regulations to maintain price stability and manage inflationary expectations. These multifaceted measures enable central banks to actively manage and control inflation within an economy.