Monetary policy - Financial definition
Concise definition of the term monetary policy
Monetary policy is the process by which a central bank manages a country's money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, maintaining employment, and ensuring economic stability.
Comprehensive definition of the term monetary policy
In the broader context, monetary policy involves various tools and strategies employed by central banks, such as the Federal Reserve in the United States or the European Central Bank, to influence economic activity. Practical examples include adjusting the federal funds rate in the US or equivalent key rates, conducting open market operations, and setting reserve requirements for commercial banks.
These actions impact lending, consumer spending, and investment, which in turn affect overall economic growth. Market practices also include forward guidance, where central banks communicate future policy intentions to influence financial conditions and economic expectations.