Question 22 of 32
Q.Explain the qualitative tools of monetary policy.
Gujarat GsebGujarat Board (GSEB) HSC Commerce Board 2022Subjective· 3mImportance★★★★★
69% · 22/32 Questions
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Start your 14-day free trial to unlock the full solution →Qualitative (selective) tools control the direction/use of credit: margin requirements, consumer-credit regulation, moral suasion, direct action, credit rationing/differential rates.
Qualitative or selective tools of monetary policy are used by the RBI to control the flow of credit to particular sectors or purposes, rather than the total quantity of credit. The main ones are:
- Margin requirements — the RBI fixes the margin (gap between the value of security and the loan against it). Raising the margin reduces the loan amount available for speculative or non-priority uses; lowering it increases credit to encouraged sectors.
- Regulation of consumer credit — the RBI regulates the terms of hire-purchase and instalment credit (down payment, repayment period) to control demand for consumer durables.
- Moral suasion — the RBI persuades and advises banks, through letters and meetings, to follow its credit policy voluntarily.
- Direct action — the RBI can take penal action (refuse rediscounting, charge penal rates) against banks that do not follow its directions. …
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