What does "monetary stimulus" involve?

Monetary stimulus involves adjusting interest rates to promote economic growth. This approach is typically implemented by a country's central bank and aims to encourage borrowing and spending. When interest rates are lowered, it becomes cheaper for individuals and businesses to take out loans, which can lead to increased investment and consumption. This increase in spending can help stimulate the economy, particularly during periods of slow growth or recession.

Lower interest rates can also influence consumer behavior, making it more appealing for consumers to finance purchases such as homes and vehicles, further bolstering economic activity. Additionally, when central banks implement policies such as quantitative easing, they may buy financial assets to inject liquidity into the economy. This process is also part of a broader strategy to create a favorable environment for economic growth through monetary stimulus.