What are the Objectives and Tools of Monetary Policy?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
The objective of the Monetary Policy is to maintain price stability. The repo rate, reverse repo rate, bank rate, cash reserve ratio, open market operations, and statutory liquidity ratio are the tools of the monetary policy. The actions taken by a nation’s central bank to manage the money supply in order to maintain economic stability are referred to as monetary policy.
Table of content
Objectives and Tools of Monetary Policy
Monetary policy was implemented to ensure reasonable price stability, strong employment, and a quicker economic growth rate.
The following list includes the primary goals of the monetary policy:
- to maintain economic cycle balance.
- to ensure a reasonable degree of price stability.
- for more stable exchange rates and faster economic growth.
Use of Monetary Policy
The process through which a nation’s monetary authority controls the amount of money available in an economy is known as monetary policy. To ensure price stability and stable exchange prices with other currencies, the Monetary Policy typically modifies inflation rates or interest rates.
The Reserve Bank of India, the nation’s central banking body, coordinates monetary policy with the national government’s development objectives.
The Reserve Bank of India has the power to determine monetary policy thanks to the Reserve Bank of India Act of 1934. Fiscal policy is seen as distinct from monetary policy because it deals with taxation, public spending, and borrowing.
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Tools of Monetary Policy
The tools of monetary policy are as follows:
- Repo Rate
- Reverse Repo Rate
- Bank Rate
- Cash Reserve Ratio
- Open Market Operations
- Statutory Liquidity Ratio
Summary:
What are the Objectives and Tools of Monetary Policy?
Maintaining price stability is the objective of Monetary Policy. The tools of monetary policy are the repo rate, reverse repo rate, cash reserve ratio, bank rate, statutory liquidity ratio, and open market operations.
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