What is the role of the Reserve Bank of India in controlling inflation?

The Reserve Bank of India (RBI) controls inflation mainly through monetary policy tools. Its primary instrument is the repo rate, which influences the cost of borrowing. When inflation rises, the RBI increases the repo rate to reduce money supply and curb spending. Conversely, it lowers the rate during deflationary periods to stimulate growth. The RBI also uses tools like the cash reserve ratio (CRR), statutory liquidity ratio (SLR), and open market operations to manage liquidity in the economy. The central bank targets inflation through a flexible inflation targeting framework, with a target of 4% (±2%). By influencing interest rates and credit flow, the RBI plays a key role in maintaining price stability and economic growth.