Concept: Monetary Policy
Category: State of Indian Economy
Related News: Hindu, Feb 11
CNA mentions: 1(Feb 11)
Monetary Policy is the process with which a country’s monetary authority like the central bank, regulates the supply of money in the economy. It regulates the cost of money through this policy. Generally, it adjusts inflation rates or interest rates in order to sustain price stability and the also maintain predictable exchange rates with foreign currencies. The central banking authority in India is the Reserve Bank of India (RBI) and it controls the monetary policy in conjunction with the central government’s developmental agenda. Monetary policy is often seen separate from the fiscal policy which deals with taxation, spending by government and borrowing. Monetary policy is either contractionary or expansionary. When the total money supply is increased rapidly than normal, it is called an expansionary policy while a slower increase or even decrease of the same refers to a contractionary policy.