The price instability has been a persistent problem in the emerging economies. With rising curiosity regarding true drivers of inflation and motivated by the ongoing debates this study examines how Money supply (M1) and Repo rate shape inflation in India. The research includes evidence from the era after Central Bank (RBI) began formally targeting inflation. The research answers the question of which is a more powerful tool for managing prices: controlling the money supply or changing the interest rate. This study addresses a research gap in the existing literature for India, which often presents mixed empirical findings. The primary objective is to evaluate whether liquidity expansion (controlling the money supply) or policy rate adjustments (changing interest rates) exerts a stronger influence on consumer price inflation (CPI). The research methodology employs an econometric modelling framework, specifically multiple regression analysis using monthly secondary data collected from 2013 to 2025. This approach assesses the monetary variables and their impact on inflation. The analysis reveals that the narrow money supply (M1) has a strong and significant effect on inflation. In contrast, the Repo Rate does not display a meaningful influence, highlighting the dominance of liquidity conditions over interest-rate. Overall, these findings imply that inflation in India is more sensitive to monetary expansion than to policy-rate changes. The research adds value by refining the existing empirical understanding of India's monetary dynamics and supports the need for strengthened transmission mechanisms within the central bank's operational framework.
Money Supply (M1), Repo Rate, Consumer Price Inflation, Monetary Policy, Inflation Dynamics, Time-Series Analysis, Econometric Modelling, India.
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