Monetary policy

In the news

• Explained: Why central banks from the Fed to the RBI are raising interest rates again 18 October 2026 · The Hindu

  Four major central banks raised rates within a month. Can higher interest rates fix inflation driven by oil and war?

• Nobel economics prize 2026 goes to Robert Hall and Michael Woodford for stabilisation work 13 October 2026 · The Hindu

  Why does what people expect about tomorrow decide how well a central bank can steady the economy today?

• RBI may raise rates twice by the end of 2026, analysts say 19 September 2026 · The Hindu

  Inflation is back in the conversation. Why a rate hike now?

Key facts

• The Fed raised its target range to 3.75% to 4.00% on 16 September 2026, its first hike since July 2023. (18 October 2026)
• The ECB raised its deposit facility rate to 2.50% and the BoJ its rate to 1.25%, by a 7 to 2 vote. (18 October 2026)
• The 2026 economics prize went to Robert E. Hall (Stanford) and Michael Woodford (Columbia) "for microeconomic foundations of macroeconomic stabilisation". (13 October 2026)
• The economics prize is formally the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel; it was set up by Sweden's central bank and first awarded in 1969. (13 October 2026)
• The Monetary Policy Committee has six members, three from the RBI and three appointed by the government; the Governor has a casting vote. (19 September 2026)
• The inflation target is 4% CPI with a tolerance band of 2-6%, under the RBI Act as amended in 2016. (19 September 2026)

Previous-year questions

1. 2024 · GS3 · 10 marks What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.
2. 2022 · GS2 · 15 marks Besides the welfare schemes, India needs deft management of inflation and unemployment to serve the poor and the underprivileged sections of the society. Discuss.
3. 2019 · GS3 · 10 marks Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.
4. 2022 · Prelims With reference to the Indian economy, consider the following statements: 1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. 2. If the rupee is rapidly depreciating, RBI…
5. 2022 · Prelims In India, which one of the following is responsible for maintaining price stability by controlling inflation? (a) Department of Consumer Affairs (b) Expenditure Management Commission (c) Financial Stability and…
6. 2017 · Prelims Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? 1. It decides the RBI's benchmark interest rates. 2. It is a 12-member body including the Governor of RBI and is…