Monetary policy

Monetary policy has become the preferred policy instrument to be used in the pursuit of economic stability. It is customarily operated for that purpose by varying a central bank's discount rate in response to indications concerning the degree of capacity utilisation in the economy. It has also been used as a temporary expedient to counter the threat of deflation by central bank purchases of government bonds and private sector securities - a practice termed quantitative easing or "credit easing" (and popularly known as "printing money"). The practice, advocated by proponents of monetarism, of the day-to-day targeting of monetary policy on the money supply in order to counter inflationary tendencies has generally fallen into disuse. Some authorities are, however, considering the use of monetary instruments to prevent the potentially destabilising buildup of asset-price bubbles.