Definition
The central bank of a country controls the supply of money and stabilizes prices in the economy using instruments of Monetary Policy like Cash Reserve Ratio, Bank Rate Policy, Repo Rate, and Reverse Repo Rate.
Examples
- In India, the Monetary Policy Committee meets every month to discuss the economic situation of the country.
- In times of inflation, the prices of goods and services rise rapidly. One reason for this is because people have more money, they tend to spend more.
- More spending power means more demand for goods and services. More demand means higher prices!
- The Monetary Policy of a country controls inflation by controlling the amount of money in the hands of the people.
- The MPC’s next meeting is scheduled for between the 6th and 7th of February 2023.
FAQs
What is Monetary Policy?
It is a way for the central bank to control money supply, and therefore stabilise the economy. Monetary Policy makes use of instruments like repo rate, reverse repo rate and bank rate policy.
Who makes the monetary policy for India?
The Monetary Policy Committee, governed by the RBI, convenes every few months to discuss the monetary policy.
