The Reserve Bank of India (RBI) controls the money supply in the economy by controlling the interest rates. This is done by increasing or decreasing the interest rates. RBI is the Central Bank of India. One of the responsibilities of every country’s central bank is to set interest rates. So, monetary policy is a tool by which they control the money supply.

When the RBI sets the interest rate, it has to strike a balance between growth and inflation. So, if the interest rates are high, that means the borrowing rates are high, and if corporations can’t borrow easily, they cannot grow. If companies don’t succeed, then the economy slows down.