What are the monetary policy tools?

Monetary policy refers to the actions taken by the central bank of a country to control the money supply and influence the economy. The central bank has several tools at its disposal, including open market operations, reserve requirements, discount rates, and forward guidance. Open market operations involve buying or selling government securities to increase or decrease the money supply. Reserve requirements require banks to hold a certain percentage of their deposits in reserve, limiting their lending power. The discount rate is the interest rate that banks are charged to borrow money from the central bank. Finally, forward guidance involves the central bank communicating its future policy intentions to guide market expectations. These tools can be adjusted depending on economic conditions to keep inflation under control and encourage growth.

This mind map was published on 23 May 2023 and has been viewed 116 times.