Why tighten monetary policy

Please update your billing details here. Please update your billing information. The subscription details associated with this account need to be updated. Please update your billing details here to continue enjoying your subscription. The city-state joins a group of economies globally that have begun to dial back heavy pandemic-era monetary stimulus, as the threat of inflation outweighs the growth risks posed by the coronavirus.

The central bank, which manages its policy through exchange rate settings, said it would raise slightly the slope of its currency policy band, from zero percent previously. Irvin Seah, a senior economist at DBS, said the move was a result of growth and inflation emerging out of a recessionary situation. Instead of using interest rates, the MAS manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

The width of the band and the level at which it is centred will be unchanged, the MAS said. In addition, there's been a notable pivot in consumer-spending habits, from goods to services, as more Americans begin traveling and dining out again, Roach explained. She added that, overall, consumer spending remains robust- just not at the peak levels seen earlier in the spring.

Shifting to labour-market news, Roach said that weekly U. However, she stressed that job creation is still expected to run strong over the coming months, albeit with uneven improvement at times.

Focusing in on the market reaction to the Fed's policy meeting, Roach said that while long-term U. Treasury yield curve. Overall, though, she emphasised that her outlook on stocks tied to the economic recovery remains favourable, with the understanding that there may be a few bumps along the way as global central banks work to calibrate monetary policy.

How soon could the Fed begin tightening monetary policy? Ultimately, the higher interest payments reduce the borrowing capacity of people. Besides personal loans, other types of borrowings such as interest rates on credit cards, mortgages, etc. Also, when rates of borrowing are hiked during the tight monetary policy, people tend to save more with rising interest rates on savings.

When the focus is on tightening the monetary policy, it calls for selling assets in the open market for having some additional amount of capital. This leads to extracting capital from the open markets as the Fed uses the funds derived from sale with a promise of reimbursing the principal amount as well as the interest thereon.

Also, a decrease in the supply of money can also control inflation. The Fed uses the tight monetary policy approach when the economy is growing at a rapid pace. In contrast to tight monetary policy, easing monetary policy takes place when the central bank reduces interest rates for infusing more growth in the economy.