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A monetary policy report details decisions made and actions taken that relate to the supply of money and credit in an economy. This covers activities such as setting interest rates or attempting to control currency exchange rates. It differs from fiscal policy which involves taxation and spending. Most commonly a formal monetary policy report is made by a government agency or independent body responsible for monetary policy, reporting to either the government itself or a legislative body.
Most of the measures detailed in a monetary policy report deal with the money supply. This covers the amount of money in circulation in an economy, much of which may be in the form of bank deposits and balances rather than cash. It also covers the costs of credit, which affect how readily available money is to borrowers, particularly those seeking to spend on capital investment.
There are several tools available to organizations responsible for monetary policy. The most basic is the control of the money supply, which can be as simple as printing banknotes, but can include more complex measures such as quantitative easing, which involves creating electronic money to buy assets from financial institutions. Another common tool is setting the interest rates charged by a central bank for commercial banks to borrow money overnight to deal with the inconsistent balance between deposits and withdrawals: this influences the rates that banks then charge customers for loans. Another tool is to either directly adjust currency exchange rates where this is possible, or to otherwise attempt to manipulate them through currency market activity.
A monetary policy report will normally detail how well officials have performed a balancing act, with the aim being to achieve economic stability. For example, raising interest rates may curb inflation as it increases mortgage costs and thus reduces the money people have to spend. At the same time, cutting interest rates may make it easier for businesses to fund expansion and take on new staff. A report may therefore be more positive if there has been a moderate success at keeping both inflation and unemployment low rather than if one has been cut dramatically but the other has risen.
The exact nature of a monetary policy report can vary from country to country. Who makes the report and who it goes to depends both on how economic policy responsibility is allocated, and whether the country has a clear separation between its executive and legislative wings. For example, in the United States, the Federal Reserve Board delivers a monetary policy report to Congress twice a year. In the United Kingdom, the Bank of England instead makes reports directly to the Chancellor of the Exchequer, the cabinet member responsible for financial issues.