accommodative monetary policy


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Related to accommodative monetary policy: Tight Monetary Policy

Accommodative monetary policy

Federal Reserve System policy to increase the amount of money available to banks for lending. See: 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.

accommodative monetary policy

The Federal Reserve policy of increasing the supply of money to make credit more readily available. An accommodative monetary policy tends to lower interest rates, especially the short-term ones, at the time credit is made plentiful. Such a policy is likely to result eventually in increased inflation and interest rates. Compare monetary policy.
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In the six months after a 1 percentage point drop in the federal funds rate associated with accommodative monetary policy, households raise the share of their portfolio in stocks paying high dividends by 0.95 percentage points.
These developments continue to be sustained by the improvement in the external environment, favourable financing conditions dictated by our accommodative monetary policy stance, the foreign direct investments inflows, and the higher electricity output owing to the favourable hydro situation in this year.
The OECD said: "The global economy is experiencing stronger growth, driven by a rebound in trade, higher investment and buoyant job creation, and supported by very accommodative monetary policy and fiscal easing."
The global economy is experiencing stronger growth, driven by a rebound in trade, higher investment and buoyant job creation, and supported by very accommodative monetary policy and fiscal easing, according to the Organisation for Economic Co-operation and Development's (OECD) latest Economic Outlook.
Accommodative monetary policy and fiscal stimulus will bolster growth, which Fitch forecasts at 2.8% in 2018 and 3.1% in 2019.
It also says the legal caps on borrowing have undermined the independence of the CBK."Following the MPC (Monetary Policy Committee) meeting in January 2018, it was noted that there was scope for accommodative monetary policy, however, interest rate caps had created an environment of possible perverse outcomes, thus constraining the MPC from using the CBR (Central Bank Rate) to signal its policy stance," it notes.
"Encouraging businesses and households to take on more risk is precisely one intended effect of an accommodative monetary policy. And that is one reason we and many others have sought a deepening and refinement of macroprudential supervision and regulation," said Lipton, acknowledging concerns about the rise in asset prices across many markets, increasing investor risks and complacency as well as rising corporate and sovereign debt occurring in many countries.
The report said that inflation has remained benign, hovering below target in Bangladesh, Pakistan, and India while favourable weather in Pakistan and India and lower oil prices have helped keep inflation low, and thereby made possible an accommodative monetary policy.
ICICI Bank managing director and chief executive officer Chanda Kochhar said, "I expect to see easing of rates over a period of time as further transmission of accommodative monetary policy takes place." The RBI said that banks have cut their base rate by only 0.30 per cent as against the 0.75 per cent cut by the Central bank and hoped that that they would go for more rate cuts.
''The danger is that vulnerabilities that build up during a period of very accommodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility,'' Lagarde said in prepared remarks in Mumbai at the end of a two-day visit to India.
"The ECB has taken forceful steps to support the economy through accommodative monetary policy," Lew said, according to the text of a speech to be delivered later Wednesday.
Stocks rallied yesterday after Fed Chair Janet Yellen said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.