What are the main instruments at the disposal of the central bank to conduct monetary policy?

 What are the main instruments at the disposal of the central bank to conduct monetary policy? 

Ans. Bank Rate: It is the rate at which central bank rediscounts the approved bills held by the Commercial banks. At present Bank rate is 4.5%. When there is a need to expand credit, Bank rate is reduced (i.e. when there is inflation in the economy) and when there is need to contract credit, Bank rate is increased. (i.e. when there is depression or recession in the economy.) 

Variable Reserve Ratios 

Cash Reserve Ratio: It is the proportion of total deposits/liabilities that a commercial bank has to keep with the central bank. When there is a need to expand credit, CRR is reduced (i.e. when there is inflation in the economy) and when there is need to contract credit, CRR is increased. (i.e. when there is depression or recession in the economy.) At present CRR is 5%. 

Statutory Liquidity Ratio: It is the proportion of total deposits/liabilities that a commercial bank has to keep with itself so as to satisfy the demands of its depositors in the form of cash, gold or approved government securities. When there is a need to expand credit, SLR is reduced (i.e. when there is inflation in the economy) and when there is need to contract credit, SLR is increased. (i.e. when there is depression or recession in the economy.) At present SLR is 25% 

Open Market Operations: It refers to purchase and sale of securities by the central government to influence the supply of funds in the financial market and thereby rate of interests and volume of credit. When there is a need to expand credit, central bank buys securities which increases availability of funds with the banks for lending purpose and when there is a need to contract credit, central bank sells securities which decreases availability of funds with the banks for lending purpose.