Which of the following is an example of a quantitative monetary policy tool?

The correct answer is - Bank rate

Key Points

• Bank rate
  • The bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans.
  • It is a quantitative monetary policy tool used by central banks to control the supply of money in the economy.
  • By raising or lowering the bank rate, central banks can influence overall economic activity, inflation, and other economic indicators.
  • An increase in the bank rate can lead to higher borrowing costs, thereby reducing the money supply and curbing inflation.
  • A decrease in the bank rate can lead to lower borrowing costs, thereby increasing the money supply and stimulating economic activity.

Additional Information

• Moral suasion
  • Moral suasion refers to the tactic used by central banks to influence and pressure banks and other financial institutions to adhere to policy guidelines through persuasion and appeals to moral responsibility.
  • It is a qualitative tool rather than a quantitative one.
• Credit rationing
  • Credit rationing involves the central bank placing limits on the amount of loans that banks can issue.
  • This is a direct control measure and is considered a qualitative tool.
• Margin requirement
  • Margin requirement is the minimum amount of a borrower's own funds that must be put forward before they can borrow additional funds from a bank or broker.
  • This tool is used to control the amount of money banks can lend relative to the value of the collateral provided by borrowers.
  • It is also considered a qualitative tool.