For the first time, the influence of financial inclusion on the size and timing of policy rate changes can be gauged. 3  Monetary policy maximises human welfare by minimising the deviations of output from its potential and inflation from the target.
Although it is empirically observed that there is a two-way relationship between monetary policy and financial inclusion, it is unambiguous that financial inclusion is able to dampen inflation and output volatility. This is achieved by smoothing consumption by enabling people to draw down financial savings in difficult times for everyday needs. In the process, it makes people interest-sensitive.