cheap money

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Related to Loose Monetary Policy: Tight Monetary Policy

Cheap Money

A monetary policy in which a central bank sets low interest rates so that credit is easily attainable. This makes borrowing easy for business, which stimulates investment and expansion of operations. The immediate result of cheap money is a boost in stock prices; in the medium term, cheap money promotes economic growth. However, if cheap money remains in the economy for too long, it can lead to a situation in which there is a glut of currency or too many dollars chasing too few goods and services leading to inflation. For this reason, most central banks alternate between policies of cheap money and tight money in varying degrees to encourage growth while keeping inflation under control.

cheap money

cheap money

a government policy whereby the CENTRAL BANK is authorized to purchase government BONDS on the open market to facilitate an increase in the MONEY SUPPLY (see MONETARY POLICY).

The increase in money supply serves to reduce INTEREST RATES, which encourages INVESTMENT because previously unprofitable investments now become profitable as a result of the reduced cost of borrowing (see MARGINAL EFFICIENCY OF CAPITAL/INVESTMENT).

Cheap money policy, through MONEY SUPPLY/SPENDING LINKAGES, increases AGGREGATE DEMAND. Compare TIGHT MONEY. See LIQUIDITY TRAP.

References in periodicals archive ?
The official said that the bank might keep loose monetary policy because of a slowdown in China and falling commodity prices.
The Experts are split as to whether the unexpected weakness just extends the time horizon before the full recovery comes to fruition or whether the perceived recovery is really a sham, artificially inflated by loose monetary policy.
The RBI is concerned that its loose monetary policy should boost economic growth.
The improving economic picture, combined with loose monetary policy, should in theory lead to increased housing demand, and the markets have priced this in for the two house-building companies.
However it seems that investors are finally starting to agree that loose monetary policy can not go on forever and good economic news from the US can only really be a good thing in the long term.
dollar amid speculation that the Federal Reserve will maintain its current loose monetary policy for a long time.
Zhang Zhiwei, an economist with Nomura International, said the rise in inflation was mainly due to China's loose monetary policy to spur growth and a consumer spending spree during the Lunar New Year holiday, which fell in February this year.
Despite the positive market impact, analysts warned that the G-7 statement changed little in concrete terms, since any country could claim that its loose monetary policy was used to help the domestic economy, not set the interest rate.
Federal Reserve bank will maintain loose monetary policy on Wednesday after its policy meeting.
Perng Fai-nan, CBC governor, expected the CBC to maintain the existing loose monetary policy at least by year end, citing the stable price outlook for the coming three months.
The absence of expanding output will mean that the central bank is likely to maintain a very loose monetary policy, holding the British Pound back against the currencies of countries where economic growth and by extension interest rates will head higher sooner (most notably the US Dollar).
The governor made the statement while explaining the reasons for the central bank's loose monetary policy.