Question

Which of the following is a quantitative instrument of credit control by the Central Bank?

• A. Moral suasion
• B. Margin requirements
• C. Open Market Operations (OMO)
• D. Rationing of credit

Hint:

Quantitative Instruments:
• CRR
• SLR
• Bank Rate
• Repo Rate
• Open Market Operations Qualitative Instruments:
• Moral Suasion
• Margin Requirements
• Credit Rationing

Answer 1

The Correct Option is C

Concept: The Central Bank controls the supply of credit in the economy through various monetary policy instruments. These instruments are classified into:
• Quantitative Instruments
• Qualitative Instruments Quantitative instruments affect the total volume of credit in the economy. Qualitative instruments regulate the direction and use of credit. Open Market Operations (OMO) is one of the most important quantitative instruments used by the Central Bank.

Step 1: Understand quantitative credit control.
Quantitative methods influence the overall supply of money and credit. Examples include:
• Bank Rate Policy
• Cash Reserve Ratio (CRR)
• Statutory Liquidity Ratio (SLR)
• Open Market Operations (OMO) These measures affect the entire banking system.

Step 2: Understand Open Market Operations.
Open Market Operations refer to the purchase and sale of government securities by the Central Bank. When the Central Bank purchases securities: \[ \text{Money Supply Increases} \] When it sells securities: \[ \text{Money Supply Decreases} \] Thus OMO directly controls the volume of credit.

Step 3: Examine Moral Suasion.
Moral suasion refers to requests, persuasion and advice given by the Central Bank to commercial banks. It does not directly alter the quantity of money. Hence it is a qualitative method.

Step 4: Examine Margin Requirements and Credit Rationing.
Margin requirements regulate loans against securities. Credit rationing restricts credit to particular sectors. Both are selective or qualitative measures. Therefore they are not quantitative instruments.

Step 5: Choose the correct answer.
Among the given options, only Open Market Operations directly influence total credit in the economy. Hence: \[ \boxed{\text{Open Market Operations (OMO)}} \] Therefore, \[ \boxed{(C)} \]