Find out the instruments of monetary policy in India : 

(i) Marginal Standing Facility Rate

(ii) Deficit financing 

(iii) Statutory Liquidity Ratio

(iv) Taxation policies 

 

Key Points
 Monetary policy refers to the measures taken by the Reserve Bank of India (RBI) to control money supply and interest rates in the economy.
The instruments of monetary policy are classified into quantitative and qualitative tools.
Monetary Policy Instruments in India:
Marginal Standing Facility Rate (MSF):

It is a short-term borrowing facility provided by the RBI to commercial banks at a rate higher than the repo rate.
It is used as a tool to control inflation and liquidity in the banking system.
 Statutory Liquidity Ratio (SLR):

It is the minimum percentage of a bank’s Net Demand and Time Liabilities (NDTL) that must be maintained in liquid assets like cash, gold, or approved government securities.
SLR is used to regulate credit growth and control inflation.
 Deficit Financing (NOT a monetary policy tool):

It refers to government borrowing and printing new currency to cover fiscal deficits.
It is a fiscal policy tool, not a monetary policy instrument.
 Taxation Policies (NOT a monetary policy tool):

Taxes are used by the government to regulate demand, revenue, and income distribution.
Taxation is part of fiscal policy, controlled by the Ministry of Finance, not the RBI.
Important Points 
The RBI controls monetary policy under the Monetary Policy Framework Agreement (MPFA), focusing on inflation targeting.
Other Monetary Policy Instruments:
Repo Rate: Interest rate at which banks borrow from the RBI.
Reverse Repo Rate: Interest rate at which banks deposit surplus funds with the RBI.
Cash Reserve Ratio (CRR): Percentage of total deposits banks must keep with the RBI.
Open Market Operations (OMO): Buying and selling government securities to regulate liquidity.
Bank Rate: Interest rate at which the RBI provides long-term funds to banks.
Moral Suasion: Persuasion by the RBI to encourage or discourage lending.
Additional Information 
Monetary Policy Committee (MPC):
Established in 2016 under the RBI Act, 1934, it decides key policy rates.
The current inflation target is 4% ± 2% (i.e., 2%–6%).
Difference Between Monetary and Fiscal Policy:
Monetary Policy (controlled by RBI) regulates money supply, interest rates, and inflation.
Fiscal Policy (controlled by the Government of India) regulates taxes, spending, and public debt.
Impact of Monetary Policy:
A tight monetary policy reduces inflation but slows growth.
A loose monetary policy boosts growth but may increase inflation.