How Islam Views Inflation Control Through Interest Rates?
Monetary Policy is a very complex topic and involves many factors of which interest rate is one. This is a specialized area which requires insight from professionals. It is not possible to say anything in a blanket statement. However, one thing which is clear is that economies running on conventional banking system where interest rates are an integral part in running of their operations, Central Banks have no other option but to use interest rate benchmark for important monetary policy decisions. But economies which have transitioned completely to Islamic mode of banking where interest rates do not exist the way they do in conventional banking, other measures have been adopted by their respective Central Banks for running of their countries monetary policies. Therefore, once we transition to a riba-free banking system, the corresponding Monerary Policy will also adjust itself accordingly. Attached is an IMF Working Paper which has studied monetary policy in the presence of Islamic Banking and compared it with economies running on a Dual Banking System.