The central bank undertakes publicity to educate and influence the commercial banks and the public opinion about the money market trends and banking conditions in the country. It publishes statements of its assets, policies, plans and programmes to be adopted…

Direct action is extensively used by the central bank to enforce both qualitative and quantitative credit controls. This method involves issuing of general instructions by the central bank to all banks. It may also take the form of issuing special…

Moral suasion implies an informal advice, request, recommendations  and persuasion by the central bank to the commercial bank to cooperate in adopting the existing credit policy. Eg a request to contract loans during inflation and to expand loans during recession…

Rationing of credit implies that the central bank fixes a ceiling limit on its rediscounting facilities for commercial banks or sometimes for a particular commercial bank. If the demand for credit from commercial banks is in excess of the available…

In this method the central bank issues directives in the form of written statements or declarations in the news papers, appeals and warnings to the commercial banks in order to follow a particular course of action. Through this it communicates…

This method was first introduced by the Federal Reserve System in USA in august 1941, to regulate the terms and conditions under which credit repayable installments could be extended to the consumers for purchasing durable goods Excess as well as…

Margin is the difference between the market value and the loan value of securities offered by borrowers against secured loans. By prescribing the margin requirement the central bank the amount commercial banks can advance as loans to their borrowers. ie…

Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI ie Reverse repo rate is the rate at which the central bank of a country (RBI in case of India) borrows…

“Repo rate or Repurchase rate is the rate at which commercial banks borrow money from the central bank for a short period by selling their securities to the central bank with an agreement to repurchase them at a future date…

Besides the CRR all banks are required to invest a portion of their net demand and time deposits in government securities as a part of their statutory liquidity ratio [SLR] requirement [i.e. as excess reserves]. This restricts the bank’s leverage…