Soft Landing

Definition: The Soft Landing is the economic condition, when the economy shifts from the rapid growth period to low growth or even flattens, but avoids the recession. In other words, the soft landing describes the rate of economic growth, such that, the economy must grow high enough to avoid the recession and must be slowed down enough to prevent high inflation.

The soft landing is typically an economic condition that is reached by making changes in either of the following:

  • Through the adjustments in the short-run interest rates, i.e. a temporary increase or decrease in the interest rates to curb the inflation and recession pressures.
  • Through tightening of the credit policy, such that less credit is given to the general public or the companies in the form of loans or advances.
  • Through open-market operations
  • Through the revaluation of the currency.

Thus, to keep a check on the inflation, the government makes amendments in the monetary or fiscal policy and ensures that the economy does not fall sharply to reach the recession. The central bank is required to make the monetary policy stringent enough, so that, the increase in the interest rate is only reflected in the increase in the prices and does not result in a significant increase in the unemployment levels.

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