Monetary policy is what a central bank does to influence interest rates and the amount of money and credit in an economy, usually to keep inflation low and stable. Its main tool is the policy interest rate: tightening means raising rates, and easing means cutting them or adding money in other ways. Policy announcements can coincide with higher volatility and wider spreads.
Also called: policy stance, tightening, easing, quantitative easing
Hypothetical example
Hypothetically, a central bank's inflation target is 2% and inflation is 4%. Raising its policy rate would be tightening; cutting it would be easing.
