What is the purpose of monetary policy?

The purpose of monetary policy is to maintain price stability and promote a healthy and sustainable economic environment. It is implemented by the central bank with the aim of influencing the nation's money supply and interest rates. By adjusting interest rates, the central bank can influence borrowing costs and investment levels, thereby stimulating or slowing down the economy as necessary. Through various tools like open market operations, reserve requirements, and discount rates, the central bank can also manage liquidity in the banking system. Accomplishing price stability helps avoid inflation or deflation, ensuring a stable and predictable environment for businesses and consumers. Additionally, a well-executed monetary policy supports economic growth, employment, and financial stability, contributing to overall macroeconomic stability and the long-term welfare of the nation.