Monetary Policy

Monetary policy relates to the set of activities undertaken by a country’s central bank to control the money supply, influence the extension of credit and spending, and ensure price stability often in the form of an inflation target. Central banks do this by using interest rates as their principal tool. Raising interest tightens money supply; lowering interest rates loosens money supply. Since 9/11, major central banks have also used unorthodox tools such as quantitative easing – money printing and asset-purchasing.