Cbk - monetary policy, Finance Basics

CBK - Monetary Policy

The money supply in the economy has a main effect on both the rate of inflation and the level of economic activity. The level of money supply is controlled with the CBK.

The initial effect of that an action is to reason interest rates to decline however this may also lead to increase in expected rate of inflation that in turn pushes the interest rates up in the long run. If the CBK wants to stimulate the economy, it increases the money supply. The reverse of this would occur if the CBK tightens the money supply in the economy.

Note

In periods whenever CBK is directly interfering along with the market, the yield curve will be distorted. S.T interests will be also low if the banks are easing the credit and they could be too high if the banks are tightening their credit.

Posted Date: 1/30/2013 3:04:23 AM | Location : United States







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