Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate. It’s the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
The Reserve Bank implements South Africa’s monetary policy and regulates the supply availability of money by influencing its cost. Monetary policy is set by the Reserve Bank’s monetary policy committee, which works within a flexible inflation-targeting framework.
By conducting monetary policy, the bank aims to promote monetary stability as well as economic growth. Monetary policy is a process which the bank controls the money supply and interest rates to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth. Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation.
And this is part of the monetary policy goals of achieving or maintaining full employment, a high rate of economic growth, and to stabilise prices and wages. This then helps to expand the country’s money supply. Therefore monetary policy is effective when it meets the issuing agency’s goals for its effect on the economy keeping prices stable and securing moderate long-term interest rates.