Monetary policy
Monetary policy is central government or other policy to stimulate or otherwise influence economic activity by influencing money supply or interest rates.
Historically, mechanisms for influencing the money supply have included the use of open market operations, quantitative easing, the central bank discount rate and reserve requirements.
UK monetary policy
In recent years the primary objectives of UK monetary policy have been 'stable prices' and confidence in the currency, collectively known as 'monetary stability'.
'Stable prices' are defined by the UK government's inflation target, currently 2% per annum as measured by the UK Retail Prices Index (RPI).
Responsibility for setting monetary policy for the UK - to achieve monetary stability - rests with the Bank of England's Monetary Policy Committee (MPC).
Monetary policy in the UK has usually operated through setting the Bank of England's interest rate, the Official Bank Rate, or 'Bank Rate'.
This rate is often referred to as the 'Bank of England Base Rate'.
Quantitative easing in the UK
In 2009, in addition to setting Bank Rate, the MPC started quantitative easing (QE).
This means injecting money directly into the economy by purchasing financial assets.
QE is designed to stimulate the economy further, beyond what could be achieved by low interest rates alone.
