What is the purpose of monetary policy?

The purpose of monetary policy is to manage the economy's money supply and interest rates to achieve specific economic goals. Central banks, like Central Bank, implement monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates. By influencing these factors, monetary policy aims to facilitate sustainable economic growth and stability. There are two main types of monetary policy: expansionary and contractionary. Expansionary monetary policy is employed during periods of economic downturn or recession. It involves lowering interest rates and increasing the money supply to encourage borrowing and spending, which can stimulate economic growth. Conversely, contractionary monetary policy is utilized when the economy is overheating, leading to inflation. In this case, central banks may raise interest rates and reduce the money supply to help cool off demand and stabilize prices. Overall, effective monetary policy plays a crucial role in guiding the economy, ensuring that it operates smoothly and efficiently. It influences various aspects of financial markets, consumer behavior, and overall economic performance. For specific details about Central Bank's approach to monetary policy, it may be useful to explore their official website.