Investigating the Effectiveness of India’s Monetary Policy in Controlling Inflation and Maintaining Price Stability

Abstract

This study examines how India’s monetary policy impacts inflation and contributes to price stability. Using secondary data from sources like the IMF, RBI, and the World Bank, the research employs trend analysis and statistical regression to establish a linear relationship between inflation and the bank rates set by the country's central bank. It specifically explores the connection between the repo rate and inflation. Given India’s large informal sector, the study investigates the channels through which changes in interest rates, money supply, and banking regulations influence the economy and affect price levels. Additionally, the research assesses the effectiveness of these tools under different economic conditions, such as periods of economic growth or recession. The findings suggest that while the repo rate and central bank policies do impact inflation to some extent, other economic factors also play a significant role. Therefore, implementing a robust monetary policy can help control inflation, stabilize prices, and foster overall economic growth.