Monetary Tightening

Monetary tightening is the policy in which a central bank raises interest rates and deposit ratios to make credit less easily available.

This usually happens when the central bank is seeking to slow down overheated economic growth.

Monetary tightening is considered a contractionary monetary policy.

Central banks engage in tight monetary policy when an economy is accelerating too quickly or inflation is rising too fast.

The central bank tightens monetary policy or makes money tight by raising short-term interest rates.

Raising interest rates increases the cost of borrowing and effectively reduces its attractiveness.

Tight monetary policy can also be implemented via selling assets on the central bank’s balance sheet to the market through open market operations.

Monetary tightening can negatively impact security prices and make it hard to receive a loan for a house or business.

Related Terms

Halifax House Price Index

The Halifax House Price Index (HPI) is a widely recognized measure of the UK housing market.

Hard Landing

A hard landing occurs when the tightening of monetary policy, such as raising interest rates, is too aggressive or poorly timed.

Senior Loan Officer Opinion Survey (SLOOS)

The SLOOS is a quarterly survey by the Federal Reserve that assesses changes in bank lending practices and standards in the United States.

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.

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...