objectives of monetary policy can be achieved by the use of common tools and selective.In the first case it made an impact on the overall loan market.With selective instruments governing specific economic sectors or major market participants.Key tools are the common accounting policies, carrying out open market operations and redundancy.Among the selective can be identified exercising control over certain types of credit and liquidity risk management, as well as various recommendations.
lending at the discount rate associated with one of the functions of the Central Bank.It implies the allocation of loans to commercial banks at a discount rate (for loans in the form of promissory notes), or at the refinancing rate (for other forms of credit).They are usu
ally found at a level lower than the rates in the money market.An increase in refinancing rates or interest rates, commercial banks cut borrowing.This leads to a reduction in the volume of lending to individuals or legal entities, as well as to an increase in interest rates.This tool is also called the policy of expensive money.The result is a reduction in the money supply.The opposite effect has a policy of cheap money, which is achieved by reducing key interest rates.
Changes in the money supply in circulation and the Central Bank can achieve through open market operations.It is a key tool that in the developed countries.In conducting open market operations of the Central Bank carries out the purchase and sale of government securities (reserve assets).At the sale there is a reduction of excess reserves of commercial banks, as well as reduced opportunities for lending.This reduces the money supply and rising price of borrowing.When you purchase securities, by contrast, growth in the money supply and the interest rate on loans is falling.
Monetary policy is carried out by changing the amount of assets that commercial banks are required to keep reserves in the Central Bank.All banks are only a small part of the assets held in cash, and the rest inverted in illiquid assets (such as loans).When the Central Bank changes the rate of liquidity (which is usually set as a percentage of total deposits), it affects the ability of banks to increase the money supply.With this tool the Central Bank enjoys a relatively infrequent.
selective tools CBA can use to monitor and control certain types of loan.For example, by pointing to the need to increase to make special deposits with the growth of lending.Also, the Central Bank carries out risk control and liquidity of banks.In the stock market regulation is carried out by establishing a legal margin.This is done in order not to cause serious damage to the economy with excessive enthusiasm for speculation.Finally, the Central Bank may offer advice to banks in terms of their policies.For example, to prevent excessive growth of the unsecured loan portfolio.