Price Stability: Examining the Macroeconomic Challenges of Monetary Policy

Abstract

This paper explores the macroeconomic challenges of monetary policy in India, with a specific focus on the country's pursuit of price stability. Price stability is a critical goal for any central bank, as it directly impacts economic growth, investment, and the purchasing power of the population. In India, the Reserve Bank of India (RBI) has faced persistent challenges in managing inflation, balancing economic growth, and responding to external shocks. Through an analysis of India’s inflation targeting framework, the paper examines the effectiveness of monetary policy measures, including interest rate adjustments, inflation control, and fiscal coordination. The research highlights key issues such as food and fuel inflation, external supply shocks, and currency depreciation. It also provides empirical data on inflation trends in India, identifying the periods of success and limitations of India's current policy approach. In conclusion, the paper offers policy recommendations to improve the effectiveness of monetary policy in achieving long-term price stability, with suggestions for strengthening the RBI's inflation-targeting framework and addressing structural supply-side constraints.