What is the tool of monetary policy?

The 6 tools of monetary policy are reverse Repo Rate, Reverse Repo Rate, Open Market Operations, Bank Rate policy (discount rate), cash reserve ratio (CRR), Statutory Liquidity Ratio (SLR). You can read about the Monetary Policy – Objectives, Role, Instruments in the given link.

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What is an example of a monetary policy tool?
What is the most common tool of monetary policy?
Which tool of monetary policy is most important why?

Further readings:

Monetary Policy Committee (MPC) – Structure, Objectives UPSC Notes
Monetary System – Types of Monetary System

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Monetary Policy

MAS conducts monetary policy based on sound economic analysis and careful surveillance. Find out about our monetary policy framework and central bank operations, and access our statements, reports and models.

Overview

MAS carries out the full range of central banking functions related to formulating and implementing monetary policy. Monetary policy in Singapore is centred on managing the trade-weighted exchange rate with the objective to ensure price stability over the medium term as a basis for sustainable economic growth.

Central Bank Operations

MAS implements monetary policy by undertaking foreign exchange operations to keep the Singapore dollar nominal effective exchange rate within a policy band consistent with ensuring price stability.

MAS also conducts money market operations to provide sufficient liquidity for a well-functioning banking system and to meet banks' demand for reserve and settlement balances. Details of MAS’ liquidity management framework are set out in this monograph.

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Access educational materials for students of economics.

Research

What is an example of a monetary policy tool?

Tools of Monetary Policy For example, if a central bank increases the discount rate, the cost of borrowing for the banks increases. Subsequently, the banks will increase the interest rate they charge their customers. Thus, the cost of borrowing in the economy will increase, and the money supply will decrease.

What is the most common tool of monetary policy?

Monetary policy refers to the control and supply of money in the economy. Central banks create and dictate monetary policy. The main three tools of monetary policy are – open market operations, reserve requirement, and the discount rate.

Which tool of monetary policy is most important why?

Answer and Explanation: A monetary policy uses different instruments such as open market operations, requirements on bank reserves and the rate of discounts to achieve macroeconomic goals. However, open market operations are considered the most important and frequently used tool of the three.