Monetary policy is how a central bank controls the economy through money supply and interest rates. The Federal Reserve (US), RBI (India), ECB (Europe), and Bank of England all use monetary policy as their primary economic management tool.
Two main types: expansionary (easy money) — lowering interest rates and increasing money supply to boost growth during recessions. And contractionary (tight money) — raising rates and reducing money supply to cool inflation during economic booms.
Tools include the policy rate (repo rate/Fed Funds Rate), open market operations (buying/selling government bonds), reserve requirements (CRR/SLR), and quantitative easing. Milton Friedman famously argued that "inflation is always and everywhere a monetary phenomenon" — meaning getting monetary policy right is crucial for economic stability.