Phase IFoundation
Background
Overview
The RBI's monetary policy is fundamental to India's economic management, directly impacting inflation, interest rates, and economic growth. UPSC frequently tests knowledge of RBI's functions, tools, and policy stances.
Monetary policy refers to the actions undertaken by a central bank, like the Reserve Bank of India (RBI), to manage the supply of money and credit to achieve macroeconomic objectives such as price stability, full employment, and economic growth. In India, the RBI primarily uses inflation targeting, with a mandated target of 4% CPI (Combined) within a 2%-6% tolerance band.