Abstract:

Monetary policy is an activity of The Central bank to control the availability of money and credit in a country’s economy Cecchetti, (2009). Tight monetary policies raise the nominal interest rate and inflation and reduces long run output such as the supply of bank loans, leading to a rising lending rate, thus discouraging bank-dependent borrower’s activities. In the condition of easing, more liquid money is available for banks, thus as the supply of money increases the interest rate decreases.