Monetary Policy Instruments

Monetary policy instruments are tools central banks use to manage the economy's money supply and interest rates. Key instruments include changing interest rates (like the policy rate) to influence borrowing and spending, conducting open market operations—buying or selling government securities to control liquidity, and setting reserve requirements—which determine how much banks must hold back from their deposits. These tools help central banks control inflation, support economic growth, and maintain financial stability by adjusting the availability and cost of money in the economy.