What are the techniques employed by rbi to control the supply of money and credit? How effectively have they been used so far? Discuss?
Answers
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The techniques employed by RBI to control the supply of money and credit can be classified into :
(i) qualitative method
(ii) quantitative method
● Open market operation is a type of quantitative method of credit control which refers to the and purchase of securities to the commercial banks by the central bank. Sale of securities work as an anti-inflanationary method where as purchase of security is an anti-deflanationary measure.
● Changing margin requirements is a qualitative method adopted by the RBI through which can influence the flow of credit against specific commodities. These margin requirements are determined by the central bank.
● Credit rationing is a method by which the central bank seeks to Limit the maximum amount of loans and advances, and in certain cases, fix ceilings for specific categories of loans and advances.
Effectiveness of these credit control methods depend on several factors like presence of a well organised money market, a large proportion of money in circulation should form the part of that money market and lastly money and capital markets should be extensive and Elastic in nature.