(i) Open Market Operations : Open Market Operations refer to the Sale and Purchase of Government Securities in the Open Market by the Central bank . If Central Bank Sales the Securities of Government then the deposits of commercial bank decreases and due to that the credit creation ability of the commercial banks will also decreases. Thus, the credit creation by the commercial banks will also decreases. If central bank purchases the securities of government from the open market then the deposits of commercial bank increases and due to that the credit creation ability of the commercial banks will also increases. Thus, the credit creation by the commercial banks will also increases. In the condition of inflation in the economy central bank sales the Government securities and in the condition of deflation in the economy central bank purchases the Government securities to control the problems.
(ii) Statutory Liquidity Ratio : Statutory Liquidity Ratio refers to the minimum percentage of a bank deposits which is required to kept with themselves in cash. This ratio is determined by the central bank. If central bank increases the SLR then commercial banks has to keep more percentage of their deposits with themselves, which means their credit creation ability will decreases. Thus the credit creation by the commercial banks will also decreases. If central bank decreases the SLR then commercial banks has to keep less percentage of their deposits with themselves, which means their credit creation ability will increases. Thus the credit creation by the commercial banks will also increases. In the condition of inflation in the economy central bank increases the SLR and in the condition of deflation in the economy central bank decreases the SLR to control the problems.
(iii) Cash Reserve Ratio : Cash Reserve Ratio refers to the minimum percentage of a bank deposits which is required to kept with the central bank . All the commercial banks have to keep with the central bank a certain percentage of their deposits in the form of minimum cash reserve ratio. This ratio is determined by the central bank . If central bank increases the CRR then commercial banks has to keep more percentage of their deposits with central bank, which means that their credit creation ability will decreases. Thus the credit creation by the commercial banks will also decreases. If central bank decreases the CRR then commercial banks has to keep less percentage of their deposits with central bank, which means that their credit creation ability will increases. Thus the credit creation by the commercial banks will also increases.
In the condition of inflation in the economy central bank increases the CRR and in the condition of deflation in the economy central bank decreases the CRR to control the problems.
