A steady amount of inflation allows interest rates to be near zero or even negative in real terms without actually being negative in nominal terms. Negative (real) interest rates are sometimes a necessary policy tool (see: 2008...2021), but negative nominal rates are difficult to implement in practice in our current regime of privately-controlled money creation via bank lending.

There are other monetary schemes that allow for negative nominal rates (100% reserve-backed lending, a.k.a. The Chicago Plan, or the gold or silver standard, etc.), and in those one does not need steady inflation. There was basically no inflation for most of the 19th century, when most currencies were backed by gold or silver. That had other drawbacks: for example, a relative inability to control the money supply. An expanding money supply following the California gold rush helped fuel speculation during the railroad boom, and the inability to expand the money supply on demand exacerbated the ensuing panic of 1873. Governments at the time did not believe it was their job to dampen the impacts of the business cycle, however.