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Since the onset of trade and financial liberalization in the decade of the 1990s, the monetary policy framework of the Bank has placed greater emphasis on the use of market-based instruments (open market operations) rather than on direct policy instruments to effect monetary policy.
In mid-2002, the Central Bank implemented a new monetary policy framework based on the use of the Repurchase (‘Repo’) rate. This is the rate that the Central Bank charges commercial banks for borrowing funds on an overnight basis. Changes in the ‘Repo’ rate are used to signal to the banking system the direction in which the Central Bank wishes short-term interest rates, and ultimately, the whole structure of interest rates, to move. Movements in interest rates affect credit expansion which in turn affects inflation, employment and economic growth.