Monetary Policy – Qualitative Instruments to control money supply

Selective or Qualitative methods of credit control aim at regulating and controlling the allocation of credit among various users rather than influencing the general availability of credit.

These are broadly explained below:

1) Margin Requirement:

The commercial banks generally give loans to their customers against some securities. They do not give loans equal to the full amount of the value of security, but of an amount which is less than its value.

The margin requirement of loans refers to the difference between the current value of the security offered for loans and the value of loans granted.

How does the Central Bank control Flow of Credit - Monetary Policy

Management of money supply is an important function of Central bank. High fluctuations in the volume of money (money supply) create the problems of inflation (excess demand) and deflation (deficient demand)

The central bank uses the Monetary Policy / Credit Policy for monetary management.

Monetary Policy is the policy of the central bank to regulate the availability, cost and use of money for achieving certain given objectives of the economic policy.