Definition of credit squeeze

Also called monetary squeeze. When a government tries to reduce money supply and moderate the speed of economic growth by imposing restrictions on bank credit, typically through higher interest rates.

Or when the demand for money substantially exceeds supply, forcing interest rates to rise and leading to a slowdown in economic activity.

Or when a large public sector borrowing requirement (PSBR) leads to increased government demand for funds, pushing up interest rates and causing economic activity to slow (thus negating the stimulatory impact of the PSBR).


Interactive graphic: credit squeeze explained