How do interest rates influence inflation and what role does monetary policy play in this relationship?

Interest rates are the cost of borrowing money and can greatly influence inflation, which is the rate at which prices for goods and services rise. When interest rates are low, people are more likely to borrow money to buy things like homes or cars, which can increase demand and push prices up, leading to higher inflation. On the other hand, when interest rates are high, borrowing becomes more expensive, so people tend to spend less, which can lower demand and help keep inflation in check. Monetary policy, which is set by a country's central bank, plays a crucial role in managing interest rates to either stimulate the economy or cool it down based on inflation levels. For example, if a central bank notices rising inflation, it may increase interest rates to reduce spending, helping to stabilize prices.