The various methods or instruments of credit control used by the central bank can be broadly classified into two categories: (a) quantitative or general methods, and (b) qualitative or selective methods.
1. Quantitative or General Methods:
The methods used by the central bank to influence the total volume of credit in the banking system, without any regard for the use to which it is put, are called quantitative or general methods of credit control. These methods regulate the lending ability of the financial sector of the whole economy and do not discriminate among the various sectors of the economy. The important quantitative methods of credit control are:
(a) bank rate,
(b) open market operations, and
(c) cash-reserve ratio.
2. Qualitative or Selective Methods:
The methods used by the central bank to regulate the flows of credit into particular directions of the economy are called qualitative or selective methods of credit control. Unlike the quantitative methods, which affect the total volume of credit, the qualitative methods affect the types of credit extended by the commercial banks; they affect the composition rather than the size of credit in the economy. The important qualitative or selective methods of credit control are;
(a) marginal requirements,
(b) regulation of consumer credit,
(c) control through directives,
(d) credit rationing,
(e) moral suasion and publicity, and
(f) direct action.
Do you like this site?
If you enjoy reading PreserveArticles.com, please share this site with your friends.?