Question

Briefly explain any two quantitative credit control instruments

Answer 1

Quantitative instruments control the overall availability and cost of bank credit without discriminating between sectors.

1. Bank Rate: It is the minimum rate at which the central bank lends to commercial banks or rediscounts approved bills and securities. Raising the bank rate raises commercial banks’ lending rates, reduces borrowing and contracts credit; lowering it expands credit.
2. Open Market Operations: The central bank buys or sells government and other approved securities. Selling securities drains banks’ cash reserves and contracts credit, while buying them injects liquidity and expands credit.