RBI policy: How inflation, repo rate and demand are linked to each other

With the RBI MPC expected to announce its decision on Friday, we explain how inflation, repo rate and demand are linked to each other

The Reserve Bank of India (RBI) announces its monetary policy at least four times a year, once each quarter. Currently, it announces its policy once every two months. Through its monetary policy intervention, the central bank controls the "demand" side of the economy to keep inflation in check.

Of late, inflation in India has been high. Since January, retail inflation in India has stayed above 6 per cent. In April, May, June, and August, it was above 7 per cent. The RBI's tolerance limit lies between 2 and 6 per cent.

The Monetary Policy Committee (MPC) that decides the policy