Which of the following is/are a qualitative tool of credit control adopted by the central bank of a country?
(A) Repurchase agreement.
(B) Moral suasion.
(C) Open market operations.
(D) Margin requirements.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (B) and (D) only
Qualitative tools work through persuasion: the central bank leads the commercial banks to discourage or encourage lending. Quantitative tools control the extent of money supply through the cash reserve ratio (CRR), the bank rate or open market operations.
(A) Repurchase agreement. — Not a qualitative tool. The central bank buys a security with an agreement on the date and price of its resale. Repo is a type of open market operation, so it is a quantitative tool.
(B) Moral suasion. — Qualitative tool. The central bank advises and appeals to the banks to lend more or less.
(C) Open market operations. — Not a qualitative tool. Buying and selling bonds changes the reserves of the banks and so the money supply, which makes it a quantitative tool.
(D) Margin requirements. — Qualitative tool. The margin is the part of the value of a security that a bank will not lend against, so the borrower must pay that part from his own funds. Raising it discourages lending for particular uses.
NCERT (2026-27): “3.4 Policy Tools to Control Money Supply … The RBI controls the money supply in the economy in various ways. The tools used by the Central bank to control money supply can be quantitative or qualitative. Quantitative tools, control the extent of money supply by changing the CRR, or bank rate or open market operations. Qualitative tools include persuasion by the Central bank in order to make commercial banks discourage or encourage lending which is done through moral suasion, margin requirement, etc.… …There are two types of open market operations: outright and repo.… …However, there is another type of operation in which when the central bank buys the security, this agreement of purchase also has specification about date and price of resale of this security. This type of agreement is called a repurchase agreement or repo.…” |