Henderson: Monetary toolkit

Monetary policy is the process by which a central bank/monetary authority controls the supply of money for the purpose of regulating the economy. Recent years have seen an expansion in the number of tools used by central banks across the world, with varying implications for assets.

Here we look at some of the tools making headlines and their pros and cons. Monetary policy can be expansionary (to aid expansion of the economy, typically to lift employment and inflation) or contractionary (to slow economic growth and lower inflation). In this article, we focus on its expansionary role and the wide range of tools being used by central banks in an attempt to aid growth and achieve inflation targets. In particular, we explore the potential feed-through impacts for investors.

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