Rbi - how does it maintains price stability?

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Pratik Shah (Querist)
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21 December 2012 When Price increases in Market from Rs.100 to Rs. 150, to stabilize the Price if RBI increases Interest Rates,than How do money flows from banks to the market slowing down as money becomes more expensive and people reduce borrowing from Banks?
Can you explain it with a suitable example?

Pankaj Gupta

Pankaj Gupta (Expert)
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21 December 2012 When RBI increases the interest rate, loan becomes more dear. Because banks have to increase their landing rate. As a result of which people take loan for important work only. While they shift their other demands like car etc for future when the loan becomes cheaper.
As a result of dearer loan, less fund flows from banks to market. Thus people starts spending very wisely and on their necessities only and not on their wants which can be shifted to future when loan becomes cheaper.

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