As monetary policy in India is mainly governed under the control of the regulator which is the Reserve Bank of India (RBI) in this case and it is one of the critical pillars of maintaining a conducive environment for reducing inflation while enabling sustainable growth. Monetary policy in India broadly refers to price stability, economic growth, financial stability, and management of exchange rate.

Price Stability: The major focus is to manage inflation in order to ensure the value of the rupee is preserved RBI’s target range for inflation is about 4 percent with an upper and lower tolerance band of ±2% which seek to balance growth versus inflation.

Monetary Policy and Economic Growth: The RBI uses interest rates and money supply to facilitate activities and investment in the economy. Interest rates influence demand in the economy: Lower rates can boost borrowing and spending, while higher rates can dampen excessive demand and inflation.

Stability of Financial Systems: The RBI regulates banks and financial institutions to ensure that the financial system is stable, liquid, and the payment systems are durable. This involves establishing capital adequacy standards and conducting stress tests to evaluate the resilience of financial institutions.

Along with the transmission of monetary policy, also contributes in various ways and through various policies to maintain Financial Stability, which are −Exchange Rate Management: Exchange rate is primarily determined by the market but Interventions by the RBI in the foreign exchange market to prevent excessive volatility and to keep the conditions orderly. This will help keep Indian exports competitive and provide protection against external shocks.

Conduct of the Monetary PolicyThere are several tools through which the RBI implements its monetary policy; these include the repo rate, reverse repo rate, the cash reserve ratio and the statutory liquidity ratio. The repo rate, or the rate at which the RBI lends to commercial banks, is an important tool for controlling short-term interest rates and credit availability. CRR is the portion of deposits that banks must keep in reserve, and its adjustment has an impact on liquidity in the banking system. The SLR, which requires banks to hold a specified percentage of their net demand and time liabilities in liquid assets, is also a credit determining factor.

By regulating interest rates and controlling money supply, the central bank attempts to promote steady growth while curbing inflation, contributing to economic stability in India.