Reserve Bank of India plays a very important role in controlling inflation and maintains stability in the economy.
Following are the various measures taken by RBI to control inflation:
1. Dear money policy: RBI increases the bank rate due to which the commercial banks also increase the interest rate charged on the loans and advances for the customers. Increase in interest rate lead to reduction of credit in the market which in turn reduces the money supply. Thus, controlling the inflation.
2. Increase in repo rate: Increasing repo rate discourages commercial banks to take loans and advances from RBI as they would have to pay more interest at an increase repo rate. Increase in repo rate forces commercial
banks to increase interest rate of the loans it provides to the customer. This in turn reduced the purchasing power of the people thereby, reducing supply of money in the economy. Thus, increase in repo rate helps to curb inflation in the economy.
3. Increase In reverse repo rate: Increase in reverse repo rate leads to increase in the incentives or interest that the commercial banks receive from RBI. Thus, the commercial banks will prefer giving loan to RBI instead of people. This will in turn reduce the supply of money in the market and thus, help in controlling inflation in the economy.
4. Increasing Cash Reserve Ratio: Higher the CRR leads to more reserve with RBI. This lessens the total deposits of the commercial banks which forces them to provide less credit/loan to people. Due to less credit in the economy, people have less supply of money which in turn controls the inflation and increases economic stability.
5. Increasing statutory liquidity ratio: A high SLR reduces the capacity of banks to give loans to customers thereby, reducing the supply of credit/ money in the economy. Thus, controlling Inflation in the economy.
6. Selling government bonds in the open market: When RBI sells government bonds in the open market, there is a decrease in money supply which controls the inflation in the economy.
