a) Monetary Measures

This type of measures are taken by the Central Bank of the country (RBI in case of India) through Monetary Policy. The principal tool under this method is regulating the interest rate in the economy. Since it has the effect of regulating the liquidity in the economy therefore it can be used only to control the demand-pull inflation. It is discussed as under:

(i) The RBI may take recourse to tighter monetary policy to cool down the demand-pull. For example, the RBI may increase the bank rates/repo rates etc. to curb the supply of money in the market.

(ii) RBI may also use qualitative control methods, such as raising margin on loans for commodities for which traders have a tendency to speculate and hoard.

(iii) Reserve Bank may also resort to other operations such as the Open Market Operations to mop out the liquidity from the market by selling government securities and bonds.