Objectives Of Monetary Policy

Maintain price Stability. Flow of credit to the productive sectors of the economy. Stability for the national currency. Growth in employment and income. To promote and encourage economic growth in the country.
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Instruments of Monetary Policy

Quantitative Measures Selective Credit Controls

Open Market Operations

Bank Rate

Credit Rationing

Change in Lending Margins

Cash Reserve Ratio

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Moral Suasion

Direct Controls

Quantitative Instruments
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Open Market Operations (OMO): It means the purchase and sale of securities by the central bank of the country. The OMO is the most powerful and widely used tool of monetary control. Discount Rate or Bank Rate: Bank rate is the rate at which the central bank rediscounts the bills of exchange presented by the commercial banks. For practical purposes bank rate is the rate which the central bank charges on the loans and advances to the commercial banks.

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The Cash Reserve Ratio (CRR): Cash Reserve Ratio is the percentage of total deposits which commercial banks are required to maintain in the form of cash reserve with the central bank. Statutory Liquidity Requirement (SLR): The SLR Is that proportion of the total deposits which commercial banks are required to maintain with them in the form of liquid assets (cash reserve, goldsubtitle style bonds) in addition to Click to edit Master and govt. CRR.

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Selective Credit Instruments

Credit Rationing: Under this two measures are adopted: Imposition of upper limits on the credit available to large industries and firms. Charging a higher interest rate on bank loans beyond a certain limit. Change In Lending Margins: The banks provide loans only upto a certain percentage of the value of the mortgaged property. 9/11/12

Moral Suasion:

The moral suasion is a method of persuading and convincing the commercial banks to advance credit in accordance with the directive of the central bank in the economic interest of the country.
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Direct controls:

Where all other methods prove ineffective, the monetary, authorities resort to direct control measures with clear directive to the banks carry out their lending activity in a specified manner.
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