What Is Monetary Policy

Topics: Monetary policy, Central bank, Money supply Pages: 1 (310 words) Published: July 22, 2013
What is monetary policy?

Monetary policy is what central banks use to manage the supply of money in the economy. The money supply is the total amount of money, including cash, credit and money market mutual funds. The important part of money supply is credit, which includes loans, bonds, mortgages, and other agreements to repay. The size and rate of growth of the money supply are controlled by central banks, currency board or major regulatory boards, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the bank reserves. For example, the Federal Reserves use contractionary monetary policy to offset the Federal Government's expansionary fiscal policy.

Singapore’s monetary policy
Singapore Dollar is the bedrock and the lifeline of this trade. Foreign companies wishing to purchase goods and services manufactured in Singapore will have to first purchase the SGD with their home currency and exchange SGD for goods and services. Because of this, Singapore currency is capable of floating freely and in which MAS( Monetary Authority of Singapore) will still continue to monitor the strength of SGD( Singapore Dollar) based on $SNEER(S$NEER is the Singapore Dollar Nominal Effective Exchange Rate). Thus, Monetary Authority of Singapore (MAS) is in charge of Singapore’s monetary policy in which it is also entrusted to promote monetary stability, and credit and exchange policies conducive to the growth of the economy. However, the Monetary Authority of Singapore (MAS) has a different approach in regulating the monetary system. They do not regulate the monetary system through the interest rate to influence the liquidity/ money supply in the system. Instead, they do it through the foreign exchange mechanism way and does so by intervening in the Singapore Dollar (SGD) market.

2011 Singapore’s monetary policy direction

In 2011,
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