Low inflation = lower interest rates charged by banks for loans = people borrow more money from the banks at low interest rates. High inflation = higher interest charged by banks = demand for loan drops at such high rates of interest and the bank loses its customer base. Conclusion: Limiting inflation which results in higher unemployment and lower demand for loans is only an initial, short-term reaction. In due time (there?s usually a lag between the time a policy is implemented and its effect felt), lower or stable inflation means lower interest rates charged by the banks. This results in greater consumer and business borrowing which is beneficial to the banking community.