More on Monetary Policy
A principal objective of any central bank is to safeguard the value of the currency in terms of what it will purchase. Rising prices – inflation – reduces the value of money. Monetary policy is directed to achieving this objective and providing a framework for non-inflationary economic growth. As in most other developed countries, monetary policy usually operates in the UK through influencing the price of money – the interest rate. However, in March 2009 the Bank's Monetary Policy Committee announced that in addition to setting Bank Rate, it would start to inject money directly into the economy. This means that the instrument of monetary policy shifts towards the quantity of money provided rather than its price.
Low inflation is not an end in itself. It is however an important
factor in helping to encourage long-term stability in the economy.
Price stability is a precondition for achieving a wider economic
goal of sustainable growth and employment. High inflation can
be damaging to the functioning of the economy. Low inflation
can help to foster sustainable long-term economic growth.
