Question

Q. Consider the following Monetary Policy Tools used by the RBI:

Which of the above are Quantitative measures used by RBI?

• A. 1 and 2 only
• B. 2, 4 and 5 only
• C. 1 and 3 only
• D. 1, 3, 4 and 5

Answer 1

The correct option is C 1 and 3 only

Explanation:

• RBI uses a bunch of monetary policy tools for the growth of the economy, control inflation, and ease the liquidity in the markets from time to time. Broadly they are classified as Qualitative and Quantitative tools. The qualitative method tries to control the channeling of credit to some sectors of the economy and hence control the Quality while the Quantitative method tries to control the Quantity of credit
• Some of the Qualitative tools are :
  • Margin Requirements: It is the difference between the market value of the collateral and the loan granted. This is used to control the credit exposure against the collateral.
  • Regulation of Consumer Credit: It is the restrictions on the credit on some sectors imposed by RBI ,often to prevent speculation.
  • Moral Suasion: When RBI persuades the commercial entities to follow orders on the flow of credit to various sectors of the economy
• Some of the Quantitative tools are:
  • Open Market Operations: Open market operations refer to the selling and purchasing of the treasury bills and government securities by the RBI in order to regulate money supply in the economy
  • Reserve Ratios: Like the SLR and CRR