Question

The monetary policy of India is formulated by the

• A. Reserve Bank of India
• B. ministry of finance
• C. Planning Commission
• D. none of these

Hint:

Monetary policy means controlling interest rates and money supply, which is the central bank's (RBI's) job, not the finance ministry's.

Answer 1

The Correct Option is A

Monetary policy is about controlling the supply of money and the cost of borrowing in the economy, using tools like the repo rate, cash reserve ratio, and open market operations. In India, this job is given to the country's central bank. Let's check the options.

1. Reserve Bank of India: The RBI is India's central bank, and it is directly responsible for setting interest rates and controlling money supply through monetary policy tools. This matches the question exactly.
2. ministry of finance: The finance ministry looks after fiscal policy, that is, taxation and government spending, not monetary policy.
3. Planning Commission: This body works on five year plans and resource allocation across sectors, not on interest rates or money supply.
4. none of these: Not needed, since option (1) is correct.

Since controlling interest rates and money supply is the RBI's core function, the correct option is "Reserve Bank of India".

Let's summarize:

• Monetary policy controls interest rates and the money supply in the economy.
• The Reserve Bank of India, as the central bank, is the body that sets India's monetary policy.

The answer is option (1).