Effectiveness of monetary policy in curbing inflation: a case study of India

Various studies have reflected the existence of a positive relationship between the increase of money supply and the level of inflation. Generally, this is reflected by the continued rise of prices of the various products. A situation ensues where excess amounts of money tend to be chasing too few goods. In this perspective, this study tested on whether monetary policy is an effective tool in the combating of inflation. The data utilized was derived from India's economic situations over a range of years. The period in perspective was that between the years 2000–01 and 2013–14. During this period, India faced various catastrophic economic events. Some instances of depressions, and economic recessions were vividly witnessed. In addition, the level of inflation was at an all-time high. During this duration, various monetary policies and tools were utilized by the Reserve Bank of India. The research used ordinary least square model (regression model) in the endeavor. The research found out the money supply has a direct impact on the level of inflation. Statistically, money supply has a statistical significance on the level of inflation in the country. Thus, monetary policies aimed at controlling the amount of money supply in the economy, have a tremendous impact on controlling the level of inflation.