How do the interest rates increase by a country would bring inflation down or economy steady from slump?

Answer 1

Increased interest rates are a result of a central bank shutting off the money supply to an inflationary economy.

This results in a heavy decrease in supply, which increases the value of the dollar and decreases inflation.

Since this obviously causes business investment and personal consumption to heavily fall off, this will cause a couple of years of high unemployment and falling GDP.......see ~1982 for an example.

Answer 2

When interest rates increase, it brings in foreign investment to the banks, and it makes the currency stronger. It tightens the money supply.