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

The correct answer is the Reserve Bank of India.

Key PointsReserve Bank of India:

• It was established on April 1, 1935, by the provisions of the Reserve Bank of India Act, 1934.
• The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
• Though originally privately owned, since its nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Major Functions:

• To regulate the issue of Bank notes and keeping of reserves to secure monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
• To have a modern monetary policy framework to meet the challenge of an increasingly complex economy.
• To maintain price stability while keeping in mind the objective of growth. Hence, Option 4 is correct.

Additional Information

Monetary Policy Committee:

• It was created in 2016.
• It was created to bring transparency and accountability in deciding monetary policy.
• MPC determines the policy interest rate required to achieve the inflation target.
• The committee comprises of six members and Governor RBI acts as an ex-officio chairman. Three members are from RBI and three are selected by the government.
• The inflation target is to be set once in five years. It is set by the Government of India, in consultation with the Reserve Bank.
• The current inflation target is pegged at 4% with -2/+2 tolerance.