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Monetary Policy

MON-i-ter-ee POL-uh-see /ˈmɒnɪtəri ˈpɒləsi/

noun phraseC1GRETOEFLIELTS

FormalStandard

The actions undertaken by a central bank to influence the availability and cost of money and credit to help promote national economic goals.

Monetary policy primarily involves managing interest rates, the money supply, and credit conditions. Its main goals are typically price stability (controlling inflation) and maximizing employment.

The story behind the word. The word 'monetary' comes from the Latin 'monetarius,' meaning 'of money, pertaining to a mint.' This, in turn, comes from 'Moneta,' an epithet of the Roman goddess Juno, whose temple housed the Roman mint. 'Policy' comes from Greek 'politeia' (citizenship, government). Thus, 'monetary policy' refers to the central bank's strategy for managing money and credit to influence the economy.

Word relationships

credit policy: A specific aspect of monetary policy focusing on the availability of credit.
interest rate policy: A specific aspect of monetary policy focusing on interest rates.

Commonly confused with

Fiscal Policy: Monetary policy is managed by the central bank through interest rates and money supply; fiscal policy is managed by the government through spending and taxation.

Word family

monetary (adjective): relating to money or currency

Collocations

tight monetary policy
loose monetary policy
central bank monetary policy
conduct monetary policy
monetary policy tools

Example sentences

"The Federal Reserve adjusted its monetary policy by raising interest rates to combat rising inflation." Discussing central bank actions.
"Loose monetary policy can stimulate borrowing and investment, but it also carries the risk of asset bubbles." An economic analysis.

Memory hook

Think 'Monetary' as 'Money' (central bank's money management) and 'Policy' as 'Plan.' Central Bank's Money Plan

When not to use

Do not confuse 'monetary policy' with 'fiscal policy'; they are distinct tools managed by different entities (central bank vs. government).

Fun facts

The Federal Reserve in the U.S. and the European Central Bank are examples of central banks that conduct monetary policy.
Quantitative easing (QE) is a relatively new and unconventional monetary policy tool used by central banks to inject liquidity into the economy.

Explore more words

Interest rates, Hyperinflation, Inflation, Reserves, Floating Rate, Stagflation