What are the objectives and tools of monetary policy?

By Ritesh|Updated : September 3rd, 2022

The objective of 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 policy.

Inflation control is the aim. The tools utilized by RBI to conduct monetary policy.

Monetary Policy Uses:

  • 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 is the country's central banking institution, and it oversees monetary policy in tandem with the goals of the national government for development.
  • The Reserve Bank of India Act of 1934 grants the Reserve Bank of India the authority to set monetary policy.
  • Fiscal policy, which deals with taxation, government spending, and borrowing, is considered different from monetary policy.

Objectives 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 four main goals of the monetary policy:

  • To balance the economic cycle.
  • To guarantee a fair level of pricing stability.
  • For quicker economic growth and rate of exchange stability.

Summary:

What are the objectives and tools of monetary policy?

The main objective of monetary policy is to maintain price stability, which is essential to sustaining economic growth. The goal is to control inflation.

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