Monetary policy involves central bank decisions about interest rates and money supply to manage inflation, employment, and economic stability. It is the primary macroeconomic tool used to maintain price stability.
Defining Monetary Policy Monetary policy refers to the actions taken by a central bank — such as the Bank of England, the Federal Reserve, or the European Central Bank — to control the money supply and interest rates in order to achieve macroeconomic objectives, principally price stability (low inflation) and sustainable economic growth. In most developed countries, monetary policy is delegated to an independent central bank to insulate interest rate decisions from short-term political pressures