Restrictive Policy

Restrictive policy means monetary policy that is designed to slow the economy and reduce inflation pressure. In simple terms, restrictive policy makes borrowing harder or more expensive. Restrictive policy is important because central banks use it when inflation is too high. Higher interest rates can reduce spending, cool demand, and slow price increases. For example, keeping interest rates above the neutral rate may be considered restrictive policy. Restrictive policy is not always permanent. A central bank may shift away from it if inflation cools or the economy weakens too much.