What is Monetary Policy?

Monetary policy is part of a country’s economic policy, which, together with fiscal policy, is the pillar of a country’s economic stability. Monetary (monetary) policy is intended to affect various markets in the national economy, as well as the state of the currency, prices in the country, and the unemployment and inflation rate. Good management of monetary policy can improve the country’s prosperity.

What are the types of monetary policy?

Depending on the country’s macroeconomic situation, the public entity in charge of steering this policy has a choice of two paths: expansionary and restrictive.

The goal of expansionary policy is to increase the supply of money in the market, to do this various tools are used, which include lowering interest rates, buying securities on the open market, lowering the reserve requirement ratio, etc. Among other things, this has the effect of facilitating the acquisition of credit, which can be used for consumption and investment needs. The consequence of such policies can be a decrease in unemployment, but also an increase in prices.

In a restrictive policy, the actions are quite the opposite, but they are carried out to primarily curb the growth of the inflation rate, unfortunately, the consequence can also be an increase in unemployment.

What are the most important objectives of monetary policy?

First and foremost, the responsible entity seeks to maintain a stable price level and a balanced value of the national currency. Further effects of the use of monetary policy tools include a decrease in the level of unemployment, the impact on economic development and the fight against inflation or deflation.

Who is in charge of monetary policy in Poland?

The main entities that influence monetary policy, are the Central Bank, as well as the Monetary Policy Council. Although theoretically these are politically independent bodies it should be borne in mind that often their actions are also conditioned by decisions made at the government level.