Monetary Policy Definition - Glossary

Monetary policy is a central bank's strategy to control money supply and interest rates to influence economic stability.

Monetary policy is a central bank's approach to managing a country's money supply and interest rates. Its primary goal is to achieve macroeconomic objectives like controlling inflation, stabilizing currency, and achieving full employment. Central banks, such as the Federal Reserve in the United States, utilize tools like open market operations, reserve requirements, and interest rate adjustments to influence economic activity. By increasing or decreasing the money supply, they can encourage spending and investment or curb inflation. Effective monetary policy ensures economic stability and growth while safeguarding the value of a nation's currency.