Monetary Policy: Meaning and Objectives

Monetary policy is the policy formulated and implemented by the RBI to regulate the supply of money and the availability and cost of credit in the economy, in order to achieve defined macroeconomic goals. Since 2016, monetary policy in India is decided by the Monetary Policy Committee (MPC) — a six-member committee (three from the RBI, three appointed by the Central Government) that meets periodically and decides the policy repo rate under a flexible inflation-targeting framework. Students appearing for the GSHSEB Std-12 Commerce examination should be able to state both the meaning of monetary policy and its objectives clearly, since this is a frequently asked short-answer question.

Objectives of monetary policy

1. Price stability — controlling inflation/deflation so that the value of money does not fluctuate sharply.
2. Economic growth — ensuring an adequate and timely flow of credit for investment and production.
3. Exchange-rate stability — maintaining orderly conditions in the foreign-exchange market.
4. Full employment — supporting credit conditions that encourage employment-generating activity.
5. Equitable distribution of credit — ensuring credit reaches priority and weaker sections, not just large borrowers. …