Why do central banks raise interest rates?

When central banks raise interest rates... ...they’re trying to control inflation—how fast prices rise for everyone They were £1.29, now they’re £1.39, and that’s in the space of four weeks Central banks like the Fed or the Bank of England or the European Central Bank... ...are all trying to hit an inflation target of 2% Interest rates are a really powerful tool that they have to do that If inflation is seen as too high, that’s when banks raise interest rates The change spreads through the financial system and slows down the rate of inflation Here’s how A rise in interest rates from a central bank... ...means that a commercial bank will earn more on their reserves They might make more from keeping their money in a central bank than lending it out So if they do lend it out, they’ll raise their interest rates... ...to make it worth their while