How does the RBI influence inflation through monetary policy?

How does the RBI influence inflation through monetary policy?

Step 1: The Reserve Bank of India (RBI) monitors the economy and looks at inflation rates.
Step 2: If inflation is too high, the RBI may decide to increase interest rates.
Step 3: Higher interest rates make borrowing more expensive, which means people and businesses will borrow less money.
Step 4: When borrowing decreases, people spend less money, which can help lower inflation.
Step 5: Conversely, if inflation is too low, the RBI may lower interest rates.
Step 6: Lower interest rates make borrowing cheaper, encouraging people and businesses to borrow and spend more.
Step 7: Increased spending can help raise inflation to a healthier level.

Monetary Policy – The RBI uses tools like interest rate adjustments to control money supply and influence inflation.
Interest Rates – Changes in interest rates affect borrowing costs, consumer spending, and investment, which in turn influence inflation.
Inflation Control – The RBI aims to maintain price stability by managing inflation through its monetary policy tools.