(i) Margin Requirement: A margin refers to the difference between market value of the security offered for loan and the amount loan offered by the Commercial Banks. During inflation, supply of credit is reduced by raising the requirement of margin. During deflation supply of credit is increased by lowering the requirement of ‘margin’. This measure is often used to discourage the flow of credit into speculative business activities.
(ii) Moral suasion: It refers to moral pressure exercised by the Central Bank on the Commercial Bank to be restricted and selective in lending during inflation, and to be liberal in lending during deflation. Generally, this measure is used as a selective credit control instrument to channelize the flow of credit to priority areas.
