ghosh55_Sean GladwellGetty Images_inflation Sean Gladwell/Getty Images

The Monetary Tightening Trap

Governments and central banks in the US and Europe continue to insist that raising interest rates is the only way to tame soaring prices, even though it is abundantly clear that this approach is not working. The misguided over-reliance on rate increases will likely lead to economic disaster in low- and middle-income countries.

NEW DELHI – The Spanish-American philosopher George Santayana famously warned that “those who cannot remember the past are condemned to repeat it.” But sometimes even those who can recall the past have a selective memory and draw the wrong conclusions. This is how the global policy response to the current bout of inflation is playing out, with governments and central banks across the developed world insisting that the only way to tame soaring prices is by raising interest rates and tightening monetary policy.