Which one of the following is a qualitative tool of monetary policy ?

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Which one of the following is a qualitative tool of monetary policy ?

Bank Rate
Credit Ceiling
Credit Rationing
Cash Reserve Ratio
This question was previously asked in
UPSC Combined Section Officer – 2024
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The correct answer is Credit Rationing (C).
Monetary policy tools are generally classified into quantitative and qualitative measures. Quantitative tools affect the overall volume of credit in the economy (e.g., Bank Rate, CRR, Open Market Operations). Qualitative tools, also known as selective credit controls, aim to influence the direction or flow of credit to specific sectors or for particular purposes. Credit Rationing, where the central bank or government restricts the availability of credit to certain sectors or mandates allocation to others, is a classic example of a qualitative tool.
Bank Rate and Cash Reserve Ratio (CRR) are quantitative tools that impact the lending capacity and cost for banks across the board. Credit Ceiling, while potentially limiting overall credit, can sometimes be implemented in a selective manner, blurring the lines, but Credit Rationing is a more explicit form of selective credit control, making it a clear qualitative tool used to manage the distribution of credit rather than just its total volume.

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