🧷 Authentic Classroom Explanation by IAS Monk

📌 In India, which one of the following is responsible for maintaining price stability by controlling inflation?

(a) Department of Consumer Affairs
(b) Expenditure Management Commission
(c) Financial Stability and Development Council
(d) Reserve Bank of India

✅ Correct Answer: (d)

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🧠 Classroom Explanation

• The Reserve Bank of India (RBI) is constitutionally and statutorily entrusted with the responsibility of conducting monetary policy under the Reserve Bank of India Act, 1934.
• The primary objective of monetary policy, as clearly stated in the amended RBI Act (2016), is: “to maintain price stability while keeping in mind the objective of growth.”
• The Monetary Policy Committee (MPC) determines the policy repo rate to achieve the inflation target (currently 4% ± 2%).
• RBI controls inflation through instruments such as:
  • Repo and Reverse Repo rates
  • Open Market Operations (OMOs)
  • Liquidity Adjustment Facility (LAF)
  • Cash Reserve Ratio (CRR)
• By raising interest rates, RBI reduces excess demand and inflationary pressures; by lowering rates, it stimulates growth when inflation is under control.

Hence, RBI is the authority responsible for maintaining price stability.

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🔍 Curiosity Raiser

Why was the Monetary Policy Committee (MPC) introduced in 2016 instead of leaving inflation control entirely to the RBI Governor?

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🧘 IAS Monk Whisper

When prices lose discipline,
the economy forgets balance.