HOW MONETARY POLICY CAN IMPACT FINANCIAL CRISIS?

Central banks tend to participate in the market to calm and deflect the disasters generating a tangled relationship between monetary policy and financial crises.The money supply and interest rates that are present in the market as a result of central bank policy can affect asset prices and investor confidence.This study investigates the relationship between developing monetary policy options during a financial crisis and shedding light on the choices that lead to optimal balance and prevent development of existing weaknesses.It also emphasizes that, even with experience, there should be no loose ends and that precautions should be made to avoid long-term, systematic problems.The purpose of these monetary policy tools is to balance the needs of inflation control, economic growth, and financial stability. The RBI frequently makes changes to these tools because macroeconomic data and economic conditions are ever-changing.Throughout its recent economic history, India has suffered various financial crises, indicating to reasons, such as bad fiscal management, foreign shocks, or troubles with the banking industry. The vulnerability of India’s financial system to both internal and external shocks is shown by crises such as the COVID-19 Crisis of 2020. In order to improve crisis management practices and encourage preventative actions to decrease the likelihood that such disasters will occur again, the RBI and the Indian government have strengthened financial legislation and regulations. Strategies that reduce the damage caused by financial crises are developed in order to comprehend the relationship between monetary policy and these occurrences.