They do have a tight monetary policy. That is not in question. Some just don’t fully understand the policy. Iraq has had a tight monetary policy for years now and they have used it to fight inflation.
The main tool is the interest rates. The Central Bank was offering 21% interest for a long time.
Because of that, banks deposited their money with the CBI… who wouldn’t for 21%.
What that meant was that Banks were not loaning money out, so that and the buy back of currency through auctions kept the money supply (m2 and circ) from growing out of control and as they added reserves from good oil sales they were able to tick the rate up to help counter inflation.
A loose monetary policy would see them lower the interest rates dramatically, that would spur the banks to lend more money instead of just letting it sit at the CBI collecting interest. That would be much much better for the economy. It would spur growth, but it might lead to inflation and the exchange rate going the other direction.
There have been a number of articles where economist have stated their opposition to the tight monetary policy of the CBI because it has stifled the economy at the expense of maintaining the exchange rate. They believe “to hell with the rate” let’s get banks lending and stimulate the economy.
Look at the US… we have had a very loose monetary policy… it was great for the economy, but it stunk for the value of the dollar.
