The use by the Reserve Bank of India of policy rates and liquidity tools to manage the money supply, control concept inflation, and support growth.
- Conducted by the RBI under the RBI Act, with the framework formalised in 2016 around flexible inflation targeting.
- The Monetary Policy Committee (MPC) is a six-member body (three from the RBI, three appointed by the government) that sets the concept repo rate by majority; the Governor has a casting vote.
- The inflation target is 4 percent CPI with a tolerance band of 2 to 6 percent, set by the government in consultation with the RBI.
- Quantitative tools include the repo rate, the reverse repo, the CRR and SLR, and open market operations (OMO).
- Contrasted with fiscal policy (taxation and spending by the government), which the Budget covers; monetary policy is the central bank's domain.
The MPC composition, the inflation-targeting mandate, and the list of tools are standard money-and-banking items, often statement-based.
Monetary policy (RBI, money supply and rates) versus fiscal policy (government, taxes and spending); the MPC sets rates, not the government directly.
RBI's management of money supply and rates; flexible inflation targeting (4 percent CPI, band 2 to 6 percent) set by the six-member MPC.