Monetary tightening is the policy in which a central bank raises interest rates and deposit ratios to make credit less easily available.
This usually happens when the central bank is seeking to slow down overheated economic growth.
Monetary tightening is considered a contractionary monetary policy.
Central banks engage in tight monetary policy when an economy is accelerating too quickly or inflation is rising too fast.
The central bank tightens monetary policy or makes money tight by raising short-term interest rates.
Raising interest rates increases the cost of borrowing and effectively reduces its attractiveness.
Tight monetary policy can also be implemented via selling assets on the central bank’s balance sheet to the market through open market operations.
Monetary tightening can negatively impact security prices and make it hard to receive a loan for a house or business.