In the process, money market plays a central role in the monetary policy transmission mechanism by providing a key link in the operations of monetary policy to financial markets and ultimately, to the real economy. In fact, money market is the first and the most important stage in the chain of monetary policy transmission.
Typically, the monetary policy instrument, effectively the price of central bank liquidity, is directly set by the central bank. In view of limited control over long-term interest rates, central banks adopt a strategy to exert direct influence on short-term interest rates.