BANKING AFFAIRS

Detailed explanation-1: -To control the inflationary trend, the Central Bank should sale government securities and raise the bank rate. Both of the measures given above result in reduction in the purchasing power of people.

Detailed explanation-2: -Central banks use monetary policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. Central banks in many advanced economies set explicit inflation targets. Many developing countries also are moving to inflation targeting.

Detailed explanation-3: -Open market operations refer to the selling and purchasing of the treasury bills and government securities by the central bank of any country in order to regulate money supply in the economy. It is one of the most important ways of monetary control that is exercised by the central banks.

Detailed explanation-4: -Reserve Bank of India is the authority to control inflation through monetary policies which it does by increasing bank rates, repo rates, cash reserve ratio, buying dollars, regulating money supply and availability of credit.

Detailed explanation-5: -This instrument is used by the RBI to restrict credit in the market. The RBI has the authority to buy or sell government securities from or to the general public. To keep inflation under control, the RBI sells securities in the money market, sucking excess liquidity out of the market.