If the Bank supplies abundant funds to the market, the market interest rate – the uncollateralized overnight call rate – will decline, reducing the funding costs of financial institutions. This will influence other interest rates such as those on loans to households and firms.
Through the change in interest rates, the cost of funds necessary for the economic activities of firms and households will change, and this will stimulate overall economic activity. As a result, this will alter the economy's supply and demand balance of goods and services, and will in turn affect prices. Monetary policy is not enforced by legislation or through administrative discretion.