Monetary policy

published 20 May 2018

Monetary policy is about exercising control over the money supply (the amount of money circulating in the economy) with the aim of influencing the economy (usually in line with political objectives such as low unemployment and economic growth).

It is usually administered by a Government-appointed central bank, such as the Bank of England, which has had independence in the area since 1997. It now makes its own adjustments to money supply with the aim of meeting Government inflation targets.

Key monetary tools available to the central banks included setting the rate of interest, buying and selling foreign currency and setting the level of reserves banks must maintain relative to the value of their loan portfolio.