Deregulation, Liberalization and Evolution of Monetary Policy in India

In a developing country the monetary policy performs the role of not only stabilizing prices but also supporting growth. With deregulation and liberalization, the challenges faced by the monetary authorities have exacerbated. In India too the wave of deregulation and international integration of the financial markets and real sector has rendered the traditional monetary policy approach inappropriate. It has led to the evolution of a broad based and a forward looking monetary policy. The paper discusses the rationale and changes in the monetary policy framework in India namely, from the 'Monetary Targeting approach' to the 'Augmented Multiple Indicators Approach'.