What are the tools used by central banks to achieve their objectives?

Central banks employ a range of tools to accomplish their objectives. These tools can be broadly categorized into three main types: monetary policy tools, regulatory tools, and crisis management tools. Monetary policy tools include interest rate adjustments, open market operations (buying or selling securities), and reserve requirements as a means to influence lending, inflation, and economic growth. Regulatory tools involve setting and supervising banking regulations, managing payment systems, and overseeing the stability of the financial sector. Crisis management tools encompass liquidity provision, emergency lending, and the establishment of lender of last resort facilities to ensure financial stability during times of economic stress or systemic risks. Central banks skillfully employ these tools in a flexible and dynamic manner to achieve their objectives of maintaining price stability, promoting economic growth, fostering financial stability, and safeguarding the overall health of the economy.