Every two months the RBI’s Monetary Policy Committee announces its decision on the policy repo rate, and every month the National Statistical Office releases the inflation number the decision is aimed at. This chapter connects the two: what inflation is, how India measures it, and the tools the RBI uses to keep it near target.

What UPSC asks

Prelims: the composition and rules of the MPC, the inflation target and its tolerance band, the difference between repo, reverse repo, SDF, MSF and bank rate, CRR vs SLR, OMOs, CPI vs WPI, and inflation vocabulary (stagflation, disinflation, core inflation).
Mains GS III: inflation targeting and growth, food inflation and supply shocks, transmission of policy rates, and coordination between fiscal and monetary policy.

Key sub-topics

Sub-topic	What to master
Framework	Urjit Patel Committee, RBI Act amendments of 2016, MPC, the 4% ± 2% target
Instruments	Quantitative (CRR, SLR, LAF, MSF, SDF, OMO, MSS) and qualitative tools
Transmission	Base rate, MCLR, external benchmark lending rate
Inflation	Types, causes, effects; headline vs core
Measurement	CPI (Combined), CPI-IW, WPI, GDP deflator

Start with Monetary Policy Framework and Inflation, then revise with the quick revision sheet and practice questions.