What Is the Monetary Policy in India?

Like the United States and many other nations, India has a reserve bank that practices monetary policy. This policy helps to regulate various fluctuations in the economy and to fiscally support the government.

Expansion and Contraction

India's reserve bank uses the most common forms of monetary regulation. In an economy with low employment, for example, it will lower interest rates. In an inflationary economy it will increase the short-term interest rate. This is what is known as expansion and contraction.

Long-Term Goals

There are two primary long-term goals for the Indian reserve. The first is to lower the CRR, or cash reserve ratio. This is the amount of money individual banks are required to have on premises. The other aim is to decrease the SLR (statutory liquidity ratio), which is the total liquid assets a financial institution has to maintain in reserve.

Foreign Currency

To activate its policies, the Indian reserve engages in the purchase of foreign money or currencies. It also makes loans to the central government.

References

• Statutory Liquidity Ratio
• Monetary Policy in India