Question
What is meant by quantitative credit control? Describe two quantitative credit control measures of the Central Bank.###Briefly discuss any two quantitative measures adopted by the Reserve Bank of India to control money supply.
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Answer
Quantitative credit control refers to those credit control instruments which are adopted by the country's Central Bank to influence the total volume of credit in the country. It affects all the sectors making use of bank credit.
Two Quantitative Credit Control Measures
(i) Bank Rate : The Central Bank (RBI) controls credit (or money supply) through changes in its bank rate. An increase in bank rate increases the cost of borrowing from the central bank. If forces the commercial banks to increase their lending rates which discourages people from taking loans from banks.
(ii) Open Market Operations : The Central Bank (RBI) controls credit through its open market operations. Under it, the central bank buys or sells the government securities in the open market. Sale of securities by central bank reduces the reserves of commercial banks which adversely affects bank's ability to create credit. And purchase of securities from the open market increases the resources of banks and hence their lending capacity.
Two Quantitative Credit Control Measures
(i) Bank Rate : The Central Bank (RBI) controls credit (or money supply) through changes in its bank rate. An increase in bank rate increases the cost of borrowing from the central bank. If forces the commercial banks to increase their lending rates which discourages people from taking loans from banks.
(ii) Open Market Operations : The Central Bank (RBI) controls credit through its open market operations. Under it, the central bank buys or sells the government securities in the open market. Sale of securities by central bank reduces the reserves of commercial banks which adversely affects bank's ability to create credit. And purchase of securities from the open market increases the resources of banks and hence their lending capacity.
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