The Monetary Policy of India is formulated and executed by Reserve Bank of India to achieve specific objectives. It refers to that policy by which central bank of the country controls(i) the supply of money, and (ii) cost of money or the rate of interest, with a view to achieve particular objectives. The main objectives of monetary policy are to achieve price stability, financial stability and adequate availability of credit for growth.
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The main aim of the monetary policy of the Reserve Bank is to control the money supply in such a manner as to expand it to meet the needs of economic growth and at the same time contract it to curb inflation. In other words, monetary policy is aimed at expanding and contracting money supply according to the needs of the economy.
Main objectives of Monetary Policy:
Instrument of Monetary Policy
The instrument of monetary policy is tools/device which is used by the monetary authority in order to attain some predetermined objectives. There are two types of instruments -
1. Quantitative Instruments or General Tools: The Quantitative Instruments aka the General Tools of monetary policy (these tools are related to the quantity/volume of the money). They are designed to regulate or control the total volume of bank credit in the economy. These tools are indirect in nature and are employed for influencing the quantity of credit in the country. The quantitative measures of credit control are:
2. Qualitative Instruments: The Qualitative Instruments aka the Selective Tools of Monetary Policy. These tools are not directed towards the quality of credit or the use of the credit. They are used for discriminating between different uses of credit. This method can have influence over the lender and borrower of the credit. The Selective Tools of credit control comprises of following instruments: