How RBI Controls Inflation?


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Inflation arises when the demand increases and there is a shortage of supply.So by anyways if government is able to reduce the money in the hands of the people it will be able to reduce the demand as the purchasing pwer of the people will reduce.

There are two policies in the hands of the RBI
1. Monetary Policy:It includes the interest rates . When the bank increases the interset rates than there is reduction in the borrowers and peple try to save more as the rate of interest has increased.

2. Fiscal Policy: Itis related to direct taxes and government spending. When direct taxes are  increased and government spending increased than the disposable income of the people reduces and hence the demand reduces.

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