Control of Inflation

Written By Fathimath Sama on Saturday, 22 June 2013 | 23:58

The measures to control inflation can be divided into: 

I. Monetary Measures: 

These measures are adopted by the central bank of the country and include such steps as an increase in re-discounted rates, sale of government securities in the open market, an increase in reserve ratios and adjustments in selective controls to arrest an inflationary credit boom. Each of these steps has its own limitations though it can be said that monetary measures are more effective in checking inflation than curbing a depression. 

a) Increased Re-discount Rates: 

To curb inflation, the central bank generally increases the re-discount rates. An increase in re-discount rates increases the cost of borrowing funds for business and consumer spending and, thus, discourages excessive activity based on borrowed funds. 
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