“Monetary Policy and Inflation Dynamics”

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Topic –: “Monetary Policy and Inflation dynamics”

Objective - : To study the Monetary policies developed by central bank to control the inflation & it’s implications on Indian economy

Introduction -: Inflation and monetary policy are closely related concepts wherein the latter can be used efficiently to reduce the effect of the former. Inflation is the rise in prices and wages that reduces the purchasing power of money. Monetary policy is the regulation adopted by the central bank, which stabilizes the prices and maximizes production and employment of the country.

Monetary policy is a regulation of a central bank which controls size and growth rate of the money supply. Monetary policy directly influences the interest rates which in turn has a negative relation with the price level. In the face of inflation the central bank of the country generally resorts to a rise in the cash reserve ratio, repo rate and reverse repo rate. The basic idea is to reduce the money supply in the economy. This would reduce aggregate demand. This reduction would again help reduce the price level. Monetary policy is adopted with an objective to make the most of production and employment and consequently stabilize the price level of a country. Monetary policy also regulates the interest rate, availability of credit and at the same time promotes the overall economic growth of a country.

Methodology-: To study implications of following aspects on Indian economy. •Inflation & its causes
Monetary policy in India
Instruments of monetary policy
Relationship between Monetary policy and Inflation
Money Demand Function and the Quantity Equation
Correlation between Inflation rate & CRR
Monetary policy & banking sector development

References -:
First Quarter Review of Annual Statement on Monetary Policy for the Year 2008-09 - RBI •Monetary Policy and Inflation Dynamics - John M. Roberts, Federal Reserve Board, U.S. •Fiscal Policy and Economic Reforms -...
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