Q. In India which one of the following is responsible for maintaining for prices stability by controlling inflation?
a) Department of Consumer Affairs
b) Expenditure Management Commission
c) Financial Stability and Development Council
d) Reserve Bank of India
Correct Answer: d) Reserve Bank of India
Question from UPSC Prelims 2022 GS Paper
Explanation :
Reserve Bank of India (RBI): Controlling Inflation and Ensuring Economic Stability
The Reserve Bank of India (RBI) is the central banking institution of India, established on April 1, 1935, under the Reserve Bank of India Act, 1934. Its primary responsibility is maintaining price stability by controlling inflation, which is essential for sustainable economic growth. High inflation can erode consumer purchasing power and lead to economic instability.
Key Tools Used by the RBI to Control Inflation
To achieve its goal of price stability, the RBI uses various monetary policy tools, including:
- Repo Rate: Influences the cost of borrowing for commercial banks.
- Reverse Repo Rate: Affects the liquidity in the banking system.
- Cash Reserve Ratio (CRR): Controls the amount of funds available for banks to lend.
- Statutory Liquidity Ratio (SLR): Regulates the bank’s credit growth.
- Open Market Operations (OMOs): Manages the money supply through the trade of government securities.
The RBI aims to maintain inflation within a target range, currently set at 4% with a tolerance band of +/- 2%, meaning the acceptable range is 2% to 6%.
