Monetary policy tightening, typically through raising policy interest rates, influences inflation primarily by:

• Increasing borrowing costs: Higher interest rates make loans more expensive for consumers and businesses, leading to reduced spending and investment.
• Reducing credit availability: Tighter monetary conditions can lead to stricter lending standards, further decreasing borrowing and spending.

This decrease in demand helps to alleviate upward pressure on prices, thereby contributing to lower inflation.

A is incorrect: While tightening can affect bond yields, the direct stimulation of private investment is not the primary channel through which it impacts inflation. Higher yields can even discourage some investment.

C is incorrect: Direct wage and price controls are not typical tools of monetary policy. These are usually considered fiscal or administrative measures.

D is incorrect: Tightening has the opposite effect, making it more difficult for SMEs to access credit.