Answer to Question #227447 in Management for Peter Masih

Question

One of the important mandate of RBI is prudent management of monetary policy, curbing inflation and checking unemployment in economy. Explain how RBI achieves
these diverse parameters by use of different tools available with it. (10 Marks)

Answer 1

The credit controls are an important instrument used to control money (liquidity) demand and supply in the economy by Reserve Bank of India, an important instrument in the monetary policy. Credit control by commercial banks is administered by the central bank. RBI employs this approach to bring "Stability Economic Development." It means banks will not only control trends of economic inflation, but will also boost economic growth, which in the end would increase real domestic income stability. The instruments used by RBI for achieving price stability and economic growth objectives include;

• Ratio of Cash Reserve
• Reserve for Legal Liquidity
• Credit directed and interest managed
• Credit Control selectivity, Open Market transactions
• Facility for Liquidity Adaptation