Monetary policy is basically the policy of the government in which there is a proper use of instruments and methods which are done to regulate the supply of money in the whole economy of a country.

Open market operations, CRR SLR are some of the tools of monetary policy. Reserve Bank of India holds the authority of applying and formulating the monetary policy in our nation. In determining the monetary policy of the nation, RBI manipulates the money supply to affect the macroeconomy.

As RBI hikes up the delivery of money going into the economy, the monetary policy is said to be expansionary. It leads to encourage investment and subsequently increase consumer demand. In the long run, however, an expansionary policy can lead to higher prices and inflation.

As Reserve Bank of India is having the authority to regulate the fund, RBI is responsible to maintain a proper balance and prevent the economy from both hyperinflation and recession.