Monitory Policy of RBI

Monetary policy refers to the process by which a country's central bank, such as the Reserve Bank of India (RBI) in India, controls the supply of money and interest rates in the economy. The primary goals of monetary policy are to achieve economic stability, control inflation, and support employment. There are two main types of monetary policy:

1. **Expansionary Monetary Policy:** This type of policy is used when the economy is experiencing a recession or slowdown. The central bank lowers interest rates and increases the money supply to stimulate economic activity. Lower interest rates make borrowing cheaper for consumers and businesses, which encourages spending and investment.

2. **Contractionary Monetary Policy:** This policy is used when the economy is overheating and experiencing high inflation. The central bank raises interest rates and reduces the money supply to curb inflation. Higher interest rates make borrowing more expensive, which reduces spending and investment, thereby controlling inflation.

### Key Tools of Monetary Policy:

1. **Interest Rates:** The central bank adjusts key interest rates such as the repo rate and reverse repo rate to influence economic activity.
2. **Cash Reserve Ratio (CRR):** Banks are required to hold a certain percentage of their deposits as reserves with the central bank.
3. **Open Market Operations (OMOs):** The central bank buys or sells government bonds in the open market to regulate the money supply.
4. **Statutory Liquidity Ratio (SLR):** Banks must maintain a certain percentage of their deposits in the form of liquid assets, such as government securities.

Effective use of monetary policy can help maintain a stable and healthy economy by controlling inflation, encouraging growth, and managing employment levels.

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