Monetary policy is the policy under which the central bank of a country (country’s monetary authority) controls the supply of money, interest rate and the uses of money to achieve certain desirable objectives, viz. full employment, economic stability and economic growth.
Economic stability can be achieved by controlling excess demand and deficient demand. Monetary measures are the same as the credit control measures adopted by the central bank. It is known that commercial banks create credit. But sometimes they create credit more and sometimes less than the country’s requirements. When they create credit more than the requirements a situations of excess demand is caused. On the other hand, a state of deficient demand is caused when credit is created less than is desired. In order to eliminate the situations of excess demand and deficient demand or inflation and definition, central bank has to control credit created by the commercial banks.
There are several methods (or measures) of credit control However, these measures can be broadly divided into two categories:
(a) Quantitative or General Measures
(b) Qualitative or Selective measures.