Monetary policy, which is also known as interest rate policy, describes the actions or in-actions of a country’s central banks. Interest rate policy generally focuses on maximizing price stability and growth. The central bank of a country is considered the institution that controls a countries currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries.
Each central bank has guidelines that are mandated by their legislature. For example, in the US, the central bank has a dual mandate which is to maximize price stability and employment. Other central banks, such as the European Central bank, have only one mandate which is price stability.
Central banks often spur growth and employment by reducing interest rates, making it easing for banks to lend money at reduced rates. Lower interest rates also increase liquidity, and make purchasing riskier assets a more attractive alternative than holding low interest baring government notes. Continue reading "Trading Using Monetary Policy Analysis"
