This Selected Issues paper analyses the monetary policy transmission in Algeria. The results suggest that the interest rate channel is relatively weak as the Bank of Algeria (BA) focuses on liquidity operations. A focus on interest rate tools, financial sector reform and central bank independence would help to improve monetary policy transmission in Algeria. The paper describes the monetary policy framework and the medium-term macroeconomic environment in Algeria. The report finds no significant relationship between the monetary policy instruments and inflation and real non-hydrocarbon growth. A significant effect of a shock to the nominal effective exchange rate on the net foreign assets in the economy is found. Estimations find that the BA’s liquidity management has the intended effect on inflation and the exchange rate while we cannot find a measurable effect on real growth; and the effects of open market interest rates are insignificant. Deeper and more diversified financial markets help transmit policy interest rates. Further strengthening BA’s independence, governance, and price stability mandate is essential including through the implementation of the monetary and banking law.