Indian Economy & Macroeconomics (Class-XII)

Central Bank as a Controller of Money Supply or Credit: Principal instruments of Monetary Policy or credit control of the Central Bank of a country are broadly classified as: (a) Quantitative Instruments or General Tools; and (b) Qualitative Instruments or Selective Tools. (a) Quantitative Instruments or General Tools of Monetary Policy: These are the instruments of monetary policy that affect overall supply of money/credit in the economy. These instruments do not direct or restrict the flow of credit to some specific sectors of the economy. They are as under: (i) Bank Rate (Discount Rate) • Bank rate is the rate of interest at which central bank lends to commercial banks without any collateral (security for purpose of loan) for long term. • In a situation of excess demand leading to inflation ,   Central bank raises bank rate that discourages commercial banks in borrowing from central bank as it will increase th