Abstract
Monetary policy, as an important arm of economic stabilization, plays a vital role in modulating business cycles in a modern economy. Monetary policy works through financial markets, the lifeline of the economic system. As such, monetary policy in India gained potency since 1991 with the introduction of reforms and the deregulation of financial markets. This article reviews the evolution of monetary policy in India with special emphasis on the flexible inflation targeting (FIT) regime. Even within the FIT period, the narrative concentrates on the challenges encountered since the beginning of the current decade and provides insights into the rationale of the monetary policy measures undertaken in balancing conflicting objectives. The article concludes by providing a perspective on how RBI’s approach has been different from other central banks.
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