Role of Central Banks in Controlling the Flow of Inflation

Inflation is a menace which is denting all in this world and that’s why the central Bank of Respective countries with the help of Government makes certain things possible in the economy to control the flow of Inflation. Inflation is the gradual rise in prices of products and services.

How Inflation affects us:

1. Inflation lefts us with less money.
2. It decreases the purchasing power of an Individual and Family.
3. It impacts our savings and insists us to use our savings even in day to day expenses which will threaten our future as we save for our future.
4. Makes life a lot difficult for poor or below the poverty line people to even manage food for their families.

How Central Bank of a respective country can help in reducing the flow of Inflation:

1. Central bank of a respective country has power to control the money supply in the economy and can control the Inflation as well.
2. Central Bank can increase the rate of Interest for loan and increase the Current Reserve Ratio (which is the amount the Banks need to keep with the central bank of a Country as Security). It will help in decreasing purchasing power of people and will help in controlling the levels of Inflation. If Central Bank increases the rate of interest for a particular class then it also helps in proper utilization for Government’s policies of a country. For example: If a country wants to decrease the number of vehicles and wants to stop unlike growth in Automobile Industry , it can dearer the Rate of Interest for this sector and it will surely going to decrease the supply of money to this sector and this is how a government can suitably use these resources. In India this work is performed by the Reserve bank of India and the central bank is also known as Apex Bank and Banker of Banks as it control the Banking Services of a respective country. Indian Government makes all monetary policies to control Inflation or even deflation with the help of Reserve Bank of India.