Explain the credit control function of the central bank.
Answers
Explanation:
The central bank uses the tool of bank rate to control volume of credit in an economy in such a way that when bank rate is low, the commercial banks borrow more from the central bank which increases the liquidity of commercial banks and they lend more money to the general public.
Answer:
Controller of Money Supply and Credit : The Central Bank controls the money supply and credit in the best interests of the economy. By this central bank can control inflationary and deflationary situation in the economy. Central bank uses various instruments to perform this function which can be categorized in -
(a) Qualitative instruments such as margin requirement, moral suasion, consumer credit, rationing of credit, differentiated rate of interest and direct action.(aims to influence the use of credit and direction of credit).
(b) Quantitative instruments such as bank rate, open market operations, CRR and SLR.(aims at controlling cost of credit and availability of credit).
Explanation:
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