UPSC Prelims 2022 Question:

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

Learn more about the Functions of RBI in the given explanation below.

Explanation:

In India, the Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934. The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth. In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework. The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years.

Functions of RBI

• Monetary authority: The Reserve Bank of India (RBI) is the central bank of India and is responsible for implementing and monitoring monetary policy to ensure price stability and support economic growth.
• Foreign exchange management: The RBI manages India's foreign exchange reserves and oversees the foreign trade payment system. It also maintains the value of the rupee outside India.
• Regulator and administrator of the financial system: The RBI regulates and supervises the banking and financial system in India. It sets the rules for branch expansion, bank mergers, liquidity of assets, and the issuance of licences.
• Issuer of currency: The RBI issues and manages India's currency notes and coins. It is also responsible for exchanging coins and currency.
• Banker to banks: The RBI settles interbank transactions and acts as the banker's bank.
• Developmental role: The RBI supports and promotes India's economic development.
• Banker and debt manager to the government: The RBI conducts banking transactions for the Indian government and manages its cash holdings. It also manages the government's public debt and issues new loans.
• Overseer of market operations: The RBI regulates and develops the repo market, money market, and other market instruments. It also conducts money market operations, foreign exchange operations, and government securities operations.
• Lender of last resort: The RBI provides loans to banks in times of financial crisis.
  
  

Therefore, option (4) is the correct answer.