Monetary policy can be expansionary or contractionary.
Expansionary indicates increase in the money supply which results in reduction in interest rates. It is also known as easy monetary policy. It encourages economic growth, lowers down the unemployment level, and improves private sector borrowings and consumer spending. To maintain the liquidity for an economy, RBI purchases bonds through the instruments of monetary policy, structures open market operations and reduces the interest rates which collectively bring liquidity in the system.
Contractionary, on the other hand, is the reverse of expansionary. It indicates the decrease in the money supply which results in the increase in interest rates to control inflation. It can slow down the economic growth, reduce borrowing and increase unemployment level.