Monetary policy is the method used by currency boards, central banks and other regulatory committees that regulates rate of growth and the size of the money supply within an economy through monetary tools such asthe discount rate, direct interest rate controls, open market operations and reserve requirements. In addition, open market operations are the tools mainly exploited within most of the Caribbean, with reserve requirements and the discount rate acting as supporting monetary tools. However, Barbados primarily uses direct interest controls, supported by changes in reverse requirements, the discount rate as well as moral suasion.
Monetary base money comprises of narrow money (M1) and broad money (M3) which is measured by the base-money multiplier. The base-money multiplier is the relationship between the monetary-base and the money supply of the economy. The central bank entails that banks have reserve requirement of five (5) percent, therefore banks only lend out a fraction of their deposits. For example the central bank requires that banks to hold a five (5) percent reverse requirement of deposits. This means for every $1.00 of deposits, a bank can only lend out $0.95. The importance of reverse requirement is to control the amount that commercial banks can increase the money supply by.

Monetary policy is the procedure used by monetary authorities (central banks) to control the money supply within an economy. Monetary authorities use three main monetary tools in an attempt to control the money supply: direct interest rate controls, open market operations, reserve requirements, and. In most countries, open market operations are the tool most utilised, with reserve requirements and the discount rate acting as supporting monetary tools. In contrast, Barbados has traditionally relied on direct interest controls, supported by changes in reserve