How can Central Banks Design Monetary Policy that Supports Poverty Alleviation Without Triggering Inflationary Pressures in Developing Countries?

This paper evaluates how central banks design policies to achieve price stability while addressing relative poverty in developing countries. The key trade-off examined is Price Stability versus Income Survival. The study highlights the adversity of using high interest rates to fight inflation while protecting real wages during cyclical booms that erode purchasing power. Monetary policy effects are non-linear and disproportionately impact those in relative poverty. The paper argues that in developing countries, the credit channel acts as a regressive tool of financial exclusion. A rigid inflation target can cause permanent economic scarring and structural unemployment for those near the poverty line. Due to sticky wages, inflation acts as a regressive tax on the poor. The paper proposes that central banks in developing countries should adopt a recession-sensitive mandate to balance currency value with economic survival and prosperity.