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i. Increase in Bank rate – the Central bank raises lending interest rate forcing commercial banks to increase their interest higher discouraging traders/businessmen/individuals to borrow.
ii. Selling Treasury Bills. – Through selling treasury bills, the individuals/businesses will give money to the government/Central Bank hence reducing money supply.
iii. Increase in cash/liquidity requirements. – This reduces money available to Commercial banks for lending hence decreasing money supply in economy.
iv. Increase in compulsory deposits which will limit the amount of money deposited in commercial banks hence reducing lending amount to individuals.
v. Selective control –The Central Bank gives special instruction to commercial banks to lend money to few sectors of the economy.
vi. Strict directive by Central Bank to Commercial Banks to increase their lending interest rates discouraging individual from borrowing.
vii. Direct action where Central Bank calls for financial institution to apply credit squeeze during specified periods.
viii. Moral Suasion where Central banks applied to Commercial banks to exercise restraint in lending.
steve williams answered the question on December 30, 2017 at 13:59
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