A country’s central bank uses a set of instruments called monetary policy to regulate the total amount of money in circulation, foster economic expansion, and implement measures like adjusting interest rates and altering bank reserve requirements.
Interest rate changes and adjustments to bank reserve requirements are examples of monetary policy strategies. It is frequently categorized as either contractionary or expansionary.
A method of managing a country’s economy to maintain moderate growth rates is known as contractionary monetary policy. Conversely, expansionary monetary policy is a macroeconomic tactic meant to boost the economy by expanding the money supply.
In essence, Central Banks (like the RBI) employ monetary policy as a tool to regulate the ebb and flow of money throughout an economy. Due to their ability to alter an economy’s business cycle, monetary policies are crucial.
