Question

Explain the various methods of credit control by the central bank.

Answer 1

Credit control is an important tool used by Reserve Bank of India, a major weapon of the monetary policyused to control the demand and supply of money (liquidity) in the economy. Central Bank administers control over the credit that the commercial banksgrant. Such a method is used by RBI to bring "Economic Development with Stability". It means that banks will not only control inflationary trends in the economy but also boost economic growth which would ultimately lead to increase in real national income stability. In view of its functions such as issuing notes and custodian of cash reserves, credit not being controlled by RBI would lead to Social and Economic instability in the country.