Contractionary monetary policy refers to the measures implemented by a central bank to reduce the money supply and availability of credit within an economy. This is typically achieved through mechanisms such as increasing interest rates (e.g., the base rate or policy rate) or engaging in open market operations, specifically the selling of government securities.

The primary objective of contractionary monetary policy is to curb inflationary pressures and cool down an overheating economy. By making borrowing more expensive and less accessible, it discourages consumption and investment, thereby moderating aggregate demand and helping to stabilise prices.