THE IMPACT OF RBI POLICY RATES ON INFLATION: A STUDY OF THE IMPLANTS

Abstract

This research explores the influence of Reserve Bank of India (RBI) policy rates on inflation in India, with a specific focus on the economic repercussions of such policies. The RBI, as the central bank, plays a crucial role in managing inflation and stabilizing the economy through its monetary policy instruments, namely the repo rate, reverse repo rate, and the marginal standing facility rate. By examining historical data, the research explores how alterations to these policy rates impact major inflation indicators, such as the Consumer Price Index (CPI) and Wholesale Price Index (WPI), and the broader economic environment. The research analyses the efficiency of RBI’s rate adjustments in limiting inflation, the transmission mechanism of policy rates to the real economy, and the lag between rate changes and their visible impact on inflation. Furthermore, the research examines the larger macroeconomic effects, including the influence on GDP growth, employment, and external trade. It underlines the importance of RBI in balancing the dual objectives of inflation control and encouraging sustainable economic growth. The findings of this study give insights into the RBI’s monetary policy framework and its direct and indirect consequences for inflation management in India.