6. Reserve Bank of India

The Reserve Bank of India (RBI) functions as the Central Bank of India and plays a pivotal role in the supply of money in the economy. It is headed by a Governor who was appointed by the Union government.

 

 

The RBI was established in \(1935\), according to the provisions of the Reserve Bank of India Act, \(1934\). During the early stages, it was owned privately; later, in \(1949\), it was nationalised and came under the complete control of the Government of India.

Functions of RBI:

The RBI performs various important functions which aid the growth and development of the country. Some of the entitled functions of the Central Bank are listed below.

1. Printing and circulation of currency.

2. Custodian of Foreign exchange.

3. Maintaining price stability.

4. Formulation of Monetary Policy.

5. Banker to the Government.

6. Banker’s Bank/ Lender of last resort.

7. Controller of Credit.

8. Collection and publication of data (RBI Bulletin and Report on Currency and Finance).

9. Acts as a Clearinghouse for banks.

10. Development and promotional functions.

Monetary Policy of RBI:

The Reserve Bank prepares the “Monetary Policy” which plays a crucial role in allocating credit for various developmental projects that the government undertakes for the country's welfare.

The Monetary policy aids the Central Bank to control inflation, interest rates, availability of Credit and the Money Supply.

 

The Monetary Policy Committee was created by amending the RBI Act of \(1934\). This committee was formed in the year \(2016\) for implementing the “Flexible Inflation Targeting Framework”.

The MPC is created to ensure accountability and transparency in charting the Monetary Policy of the RBI. It determines the interest rates essential to achieve the inflation target.

The committee contains six members, three members from government and another three members are selected from the RBI.