Monetary policy refers to the actions taken by a country’s central bank to manage the supply and cost of money in the economy, primarily through the manipulation of interest rates and other financial tools.
The main goals of monetary policy are to control inflation, manage employment levels, and stabilize the currency.
For example, to curb inflation, a central bank might raise interest rates, making borrowing more expensive and saving more attractive, thereby reducing spending and investment.
Conversely, to combat a recession, it might lower interest rates to stimulate borrowing and spending.