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Monetary Policy Tools
To accomplish its monetary policy objective, the Central Bank of Belize can use a mix of direct and indirect policy tools to influence the supply and demand of money.
Direct policy tools
These tools are used to establish limits on interest rates, credit and lending. These include direct credit control, direct interest rate control and direct lending to banks as lender of last resort, but they are rarely used in the implementation of monetary policy by the Bank. * Interest rate controls – The Bank has the power to announce the minimum and maximum rates of interest and other charges that commercial banks may impose for specific types of loans, advances or other credits and pay on deposits. Currently, the Bank does not set any interest rate levied by commercial banks except for the minimum interest rate payable on savings deposits. The Bank has opted not to use this as a tool of monetary policy but to let market forces determine interest rate. * Credit controls – The Bank has the power to control the volume, terms and conditions of commercial bank credit, including installment credit extended through loans, advances or investments. The Bank has not exercised such controls in its implementation of monetary policy. * Lending to commercial banks – The Bank may provide credit, backed by collateral, to commercial banks to meet their short-term liquidity needs as lender of last resort. The interest is set at a punitive rate to encourage banks to manage their liquidity efficiently. Indirect policy tools
Used more widely than direct tools, indirect policy tools seek to alter liquidity conditions. While the use of reserve requirements has been the traditional monetary tool of choice, more recently, the Bank shifted towards the use of open market operations to manage liquidity in the financial system and to signal its policy stance. * Reserve requirements – The Bank uses reserve requirements to limit the amount of funds that