Monetary Policy Stances

Monetary Policy Stance

Meaning

• In order to keep inflation in check, the Hawkish stance favours high-interest rates.
• Because of the high interest rates, borrowing (taking loans from banks) will become less attractive.
• Due to the dearth of money, consumers would not purchase or purchase less and also would stay away from taking credit (loans) from banks.
• This would lead to low domestic demand for Goods & Services. As a result of low demand, prices of Goods & Services would tend to stabilise. This would prevent inflation. This is a complete circle.
• Also, an increase in interest rates can cause a strengthening of the country’s currency.

• This monetary policy stance involves low interest rates.
• Low-Interest Rates would entice consumers to take credit (loans) from Banks and other sources.
• As the demand increases, the prices of Goods & Services would rise/increase.
• Inflation will cause to balance Economic Growth.
• Economists who recommend Dovish Monetary Policy Stance, typically believe that lower interest rates will lead to a hike in Employment and an increase in Economic Growth.
• This stance might also lead to a possible weakening of the country’s currency.

• This happens when a central bank (RBI) attempts to expand the overall money supply to boost the economy when the economic growth is slowing down. The major aim is to increase spending.
• This is also known as “easy monetary policy”.
• It does this by running a succession of decreases in the Interest rates, making the cost of borrowing cheaper.
• Accommodative money policy is triggered to encourage more spending from consumers and businesses by making money less expensive to borrow through the lowering of short-term interest rates.

• The policy rates neither stimulates (speed up) nor restrains (slowdown) the economic growth by taxation and government spending. Economic conditions are just right.
• The Key Policy Rates are neither increased nor decreased.