Introduction:
The central bank aims at providing financial and economic stability in the country. It supervises controls and regulates the activities of all the commercial banks and other financial institutions of the country. Thus central bank is the monetary institution whose main function is to control regulates and stabilizes the monetary system of the country in the national interests. The objectives of central bank are also called as the responsibilities of central bank.
Monetary policy of R.B.I:
It refers to the policy of managing the total volume of credit in circulation in the country. The volume and direction of the bank credit has an important bearing on the level of economic activity. the excessive credit generally leads to inflation and contraction of credit lead to deflation thus the expansion and contraction of credit and currency will bring fluctuations in economic activities lack of availability of cheap credit also wider economic development of the country the central bank of a country has the responsibility of controlling the volume and direction of credit in the country in order to achieve the objective of growth with stability the policy followed by the central bank to control the volume of money and credit with a view to attend certain economic objectives is called monitory policy.
Objectives of monetary policy:
It is a responsibility of the RBI to frame suitable monitory policy and ensure that Bank creates credit according to the needs of the economy and divert of funds towards desirable sectors the importantly objectives of monetary policy are as follow.
- Neutral monitory policy: the objectives of the monitory policy of the RBI are the stabilization of money market so as to reduce the fluctuations in the interest rates to the minimum. Credit control should be exercise in such a way that equilibrium in the demand and supply of money should be achieve at all times.
- Exchange rate stability: instability in exchange rate is harmful for the foreign trade of a country. Thus the central bank can stabilize the rate of foreign exchange by controlling bank credit.
- Price stability: the price fluctuation causes disturbance in the economic system and have serious consequences. Hence price stability is an important objective of monetary policy. The RBI by regulating the supply of credit in accordance with the need of the people can bring about price stability in the country.
- Control of business cycles: operation of business cycle brings instability in economy. The objective of economic policy of the RBI should be removed cyclical fluctuation and ensure economic stability in the country.
- Full employment: unemployment is economically and socially undesirable therefore economic stability with full employment and high per capita income has been considered as an important objective of monetary policy to achieve full employment cheap money policy has to be followed.
Conclusion:
The RBI’s monetary policy objectives are interrelated, aiming to achieve a balance between price stability, economic growth, and financial stability. By using various monetary policy tools such as interest rates, reserve requirements, and open market operations, the RBI strives to create a conducive environment for sustainable economic development. The effectiveness of these policies depends on the ability of the RBI to respond to both domestic and global economic conditions.
