What is monetary policy?
India's monetary policy is a framework established by the Reserve Bank of India to regulate the money supply in the Indian economy. The RBI’s ultimate objective with monetary policy is to ensure overall stability by influencing economic development, encouraging foreign investment, and creating market efficiency.
Tools of monetary policy
Monetary policy in India is primarily conducted through the use of several tools that are designed to allow the Reserve Bank of India (RBI) to control the monetary base and influence interest rates. The primary tools employed by the RBI include open market operations, reserve ratios, margin requirements and changes in bank rate.
How RBI implements various measures?
To affect the objectives of the policy, the RBI implements various measures that influence interest rates, money supply or credit expansion in order to achieve economic stability and growth. These steps include alteration of repo rate, reverse repo rate, bank rate, Marginal Standing Facility and Cash Reserve Ratio among others. With the changing economic environment in India, the RBI constantly reviews its monetary policy stance with an aim to provide developmental support while maintaining macroeconomic stability.