Distinguish between quantitative and qualitative instruments of monetary policy.

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**(i) Purpose.** *Quantitative* instruments regulate the *total volume* of credit in the economy. *Qualitative (selective)* instruments regulate the *direction and use* of credit — channelling it towards or away from particular sectors.

**(ii) Instruments.** *Quantitative:* Bank Rate, Repo and Reverse Repo Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Open Market Operations (OMO). *Qualitative:* margin requirements, regulation of consumer credit, moral suasion and direct action.

**(iii) Effect.** Quantitative tools affect *all* borrowers alike by changing the cost and availability of credit generally. Qualitative tools affect *specific* categories of borrowers or uses (e.g. discouraging speculative loans against certain securities). …

Basis	CRR (Cash Reserve Ratio)	SLR (Statutory Liquidity Ratio)
Meaning	Percentage of net demand and time liabilities (NDTL) kept as cash reserves with the RBI	Percentage of NDTL maintained by the bank itself in liquid assets
Form of reserve	Only cash, with the RBI	Cash, gold and approved government/other securities, held by the bank
Held with	The Reserve Bank of India	The commercial bank itself
Earning	No interest is earned on CRR balances	Banks earn a return on the securities held
Purpose	Controls the liquidity and lending capacity of banks	Ensures solvency of banks and channels funds to government securities
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Q.Distinguish between quantitative and qualitative instruments of monetary policy.

Concept understanding — Monetary Policy Instruments

Q.Distinguish between quantitative and qualitative instruments of monetary policy.

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