Monetary Easing

Monetary easing is the policy in which a central bank lowers interest rates and deposit ratios to make credit more easily available.

This makes borrowing easier for businesses, which stimulates investment and expansion of operations.

Monetary easing part of an expansionary monetary policy.

The immediate result of monetary easing is generally a boost in stock prices.

In the medium term, it promotes economic growth. However, if this policy remains for too long, it can lead to a situation in which there is too much money chasing too few goods and services, leading to inflation.

For this reason, most central banks alternate between policies of monetary easing and monetary tightening to encourage growth while keeping inflation under control.

Related Terms

Quantitative Easing (QE)

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Negative Interest Rate Policy (NIRP)

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Quantitative Tightening (QT)

Quantitative Tightening (QT) is a monetary policy tool used by central banks to reduce the amount of liquidity or money supply in the economy.

Yield Curve Control (YCC)

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Central Bank

A central bank is an organization that manages the currency of a country or group of countries and controls the money supply. Central banks, also called reserve banks, came into being because their...