Credit control refers to the methods used by a country's central bank to regulate the supply and cost of credit to maintain economic stability.
1. To keep inflation in check.
2. To control borrowing and
lending activity.
3. To stabilize the economy.
Credit control works through various monetary tools that influence the availability of money and credit in the economy.
1. Open Market Operations:
Buying and selling
government bonds.
2. Cash Reserve Ratio (CRR):
Banks must keep a portion of
deposits with the central
bank.
3. Discount Rate: Interest rate
charged on loans given to
commercial banks.
When inflation is high, central banks tighten credit control to reduce borrowing by raising interest rates and increasing
During a recession, central banks ease credit control to encourage borrowing by lowering interest rates and reducing CRR.
Banks are required to follow the central bank’s directives. By controlling their lending activities, they help regulate the economy.
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