What does it mean to tighten monetary policy?

Contractionary monetary policy is also known as tightening monetary policy. When there is unbridled economic growth, monetary policy gets tightened by the Central Bank. You can read about the Monetary Policy – Objectives, Role, Instruments  in the given link.

Tightening of monetary policy is implemented when the inflation is rising rapidly. When monetary policy is tightened, the interest rates are increased by the central bank and money supply is reduced. In this policy, the reserve requirements of banks are raised and government securities are sold.

Further readings:

  1. Monetary Policy Committee (MPC) – Structure, Objectives UPSC Notes
  2. Monetary System – Types of Monetary System 

Leave a Comment

Your Mobile number and Email id will not be published. Required fields are marked *