Greater inflation in one country leads to lower expected interest rates
why is it not higher expected interest rates?
_ Real _ interest rates, or _ nominal _ interest rates?
_ Real _ interest rates, or _ nominal _ interest rates?
Can you quote exactly the source?
Intuitively speaking, as inflation rates rise, real interest rates should be increased [by the central bank] in order to reduce future inflation. This works under the assumption the inflation impact comes from a higher aggregate demand.
On the other hand, if the higher inflation is caused by negative impact of aggregate supply (for example, a natural disaster destroys 500 factories of all industries and goods scarce), the central bank should reduce real interest rates or apply direct public investment and spending in order to reactivate supply.