Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
Monetary policy is among the many tools used by a national government to manipulate its financial system. Monetary policy refers to the method used by the financial authority of any country to control the supply and availability of money (Woelfel, 1994). It is often targeted at interest rates to achieve lay down objectives directed towards economic growth and stability (Woelfel, 1994). Monetary policy rests on the link between interest rates in an economy, that is, the relationship between interest rates and the total money supply. It employs a variety of methods to control outcomes like inflation, economic growth, currency exchange rates and unemployment.
Monetary policy can either be expansionary policy in which case there is a rapid increase in the total money in circulation in the economy, or contractionary policy in which case there is a slow increase or decrease in the total amount of money in circulation in the economy (Woelfel, 1994). The description of monetary policy takes the following approach; accommodative if the intention of the set interest rates is