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Question
Identify the following Credit Control measures undertaken by the Central Bank during inflation.
The Central Bank increases the rate at which it lends to the Commercial Bank.
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Solution
Increasing the lending rate to commercial banks is referred to as increasing the Bank Rate. By increasing the bank rate, the cost of borrowing for commercial banks rises, leading to higher lending costs for businesses and consumers. This reduces the effects of inflation.
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RELATED QUESTIONS
Briefly explain two qualitative methods of credit control adopted by this institution.
Define qualitative credit control policy of the RBI.
Which of the following is not a quantitative method of credit control?
Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Increase in cash reserve ratio adversely affects the capacity of commercial banks to create credit.
Reason (R): An increase in cash reserve ratio reduces the excess reserves of commercial banks and hence limits their credit creating power.
Define the following term:
Cash Reserve Ratio.
Briefly explain the following credit control method adopted by the Central Bank.
Publicity
Explain the following function of the central bank of a country.
Fixation of margin requirement on secured loans.
Which of the following statements are correct and which are incorrect? Give reasons.
- Central bank is a currency authority.
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- Quantitative methods regulate direction of credit.
- Bank rate is the rate at which commercial banks give loans to the public.
- Central bank should sell government securities when credit is to be expanded.
What is the credit supply policy in an economy called?
Give an example of margin requirements.
