WHY CENTRAL BANK INCREASE INTEREST RATE WHICH SLOWDOWN ECONOMIC GROWTH ?

Central banks may increase interest rates to slow down economic growth for several reasons:

1. To control inflation: When the economy is growing too quickly, it can lead to higher demand for goods and services, which can push up prices and create inflationary pressure. By raising interest rates, central banks can reduce demand and slow down the economy, which can help to control inflation.

2. To avoid a recession: If the economy is growing too quickly and is at risk of overheating, it can lead to a recession. By raising interest rates, central banks can slow down economic growth and avoid a recession.

3. To maintain economic stability: Central banks aim to maintain economic stability, which includes managing inflation and unemployment levels. By raising interest rates, they can help to achieve this goal by slowing down economic growth and controlling inflation.

4. To prevent asset bubbles: Rapid economic growth can lead to asset bubbles in the stock market, real estate market, or other sectors. These bubbles can burst, leading to a financial crisis. By raising interest rates, central banks can prevent asset bubbles from forming and reduce the risk of a financial crisis.

It's important to note that raising interest rates can also have negative effects on the economy, such as slowing down investment and consumption. Central banks need to balance the benefits of raising interest rates with the potential negative effects.