How does the RBI Control Inflation and Deflation?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
The RBI controls Inflation and Deflation by employing a variety of monetary policy tools such as Repo Rate, Reverse Repo Rate, Bank Rate, Open Market Operations, Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), Liquidity Adjustment Facility (LAF), Market Stabilisation Scheme. A collection of goods and services are subject to inflation when their cost has increased over a predetermined time period, often a year.
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Control of RBI on Inflation and Deflation
The control of inflation is one of the RBI’s primary duties. The RBI adjusts interest rates to control inflation.
- Inflation levels go down as consumers reduce their spending and prices stop rising.
- On the other hand, deflation gives the RBI room to cut interest rates.
Strategies for Retiring Inflation and Deflation
The practice of accounting for inflation is crucial to financial planning. Here are a few strategies for retiring while accounting for inflation.
- Long-term investments should be made: Spending money now on investments can enable you to profit from inflation in the future when it comes to long-term investments.
- Invest More: More money than one might think is needed for retirement. Increasing savings or aggressive investments are the two methods to reach retirement goals.
- Make various investments: Invest in different portfolios even though bond investing alone feels safer. To outpace inflation, don’t put all your eggs in one basket.
Summary:
How does the RBI Control Inflation and Deflation?
To combat inflation and deflation, the Reserve Bank of India (RBI) employs a variety of monetary policy instruments. The RBI intends to make loans more expensive by hiking interest rates, which will discourage borrowers from borrowing and spending.
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