THE ROLE OF CENTRAL BANKS IN MANAGING FISCAL DEFICITS

Fiscal deficits have long challenged economies, necessitating effective monetary interventions. This study evaluates the role of central banks in managing fiscal deficits between 2011 and 2015, highlighting their influence on inflation, debt sustainability, and economic stability. The research adopts a secondary data analysis approach, examining fiscal and monetary policy interactions across developed and emerging markets. Key findings reveal a strong inverse correlation between fiscal deficits and interest rates (r = -0.92, p < 0.01), indicating that monetary tightening effectively reduced fiscal imbalances. Additionally, regression analysis demonstrates that a 1% increase in interest rates led to a 1.8% reduction in fiscal deficits (R² = 0.95, p < 0.001). Inflation control also benefited from deficit reductions, with a correlation coefficient of 0.99 (p = 0.001) between declining deficits and lower inflation. Despite regional variations, coordinated fiscal-monetary strategies significantly improved economic resilience. The study concludes that proactive central bank interventions and policy synchronization enhance deficit management, fostering sustainable economic growth. Policymakers should institutionalize structured fiscal-monetary coordination frameworks and adopt legally binding fiscal rules to optimize policy outcomes. Future research should explore the role of digital financial systems in deficit management.