Monetary Policy

Monetary Policy refers to those actions and decisions undertaken by the Bank to create appropriate conditions that are in line with the economic objectives of the country.  In conducting monetary policy, the Bank keeps a close watch on economic developments with a view to maintaining a low and stable rate of inflation, an orderly foreign exchange market and an adequate level of foreign exchange reserves.  It then utilises a range of monetary policy tools to influence the level of liquidity in the banking system which indirectly influences the level of interest rates and, ultimately, the overall demand for goods and services in the economy.



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.



The Bank’s monetary policy framework has as its primary objectives, the maintenance of:

  • A low and stable rate of inflation
  • An orderly foreign exchange market; and
  • An adequate level of foreign exchange reserves

The conduct of monetary policy is influenced by the pace of real economic activity, the fiscal operations of the Government, trade and capital flows as well as the operations of financial institutions. In carrying out its monetary policy, the Bank also takes into account the potential implications for the foreign exchange market and the stability of the exchange rate.