Monetary policy of India

Monetary policy is the process by which the monetary authority of a country, generally central bank controls the supply of money in the economy.

The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to provide a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price stability, while keeping in mind the objective of growth.

The Monetary Policy Committee is entrusted with the task of fixing the benchmark policy rate (repo rate) required to maintain inflation within the specified target level.

The Government of India, in consultation with RBI, notified the 'Inflation Target' in the Gazette of India Extraordinary dated 5 August 2016 for the period beginning from the date of publication of the notification and ending on 31 March 2021 as 4%.

At the same time, lower and upper tolerance levels were notified to be 2% and 6% respectively.