Credit means
to lend money to others and control means not to exceed the marginal value.
Commercial bank provide loan to individual, institutions or industry. If the
limit of credit expires then economic imbalance will occur. So to ensure a good
economic balance , central bank controls the credit.
Quantitative
methods of credit control
(1)Bank rate policy: The rate at which
Central bank gives loan to commercial bank is known as bank rate policy. CB
increases or decreases those rate according to necessity.
(2)Open
market operations: Refers to the buying and selling government and other
approved securities by the central bank in order to curb deflationary and
inflationary pressures in the economy
(3)Variation
of cash reserve: All commercial bank must have a special amount of reserve
in the account of CB. The amount is 6%. If credit increased, CB increases the
reserve ratio and if decreases then CB decreases the reserve ratio.
