Instruments Used by Central Bank to Control Commercial Banks
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- Instruments Used by Central Bank to Control Commercial Banks
Central bank uses the following instruments to control the activities of commercial banks:
Open Market Operation (OMO):
This is the sale and purchase of government securities by the central bank. When the central bank feels that the quantity of money in circulation is too much, it sells treasury bills to commercial banks and collects money from them, thus reducing their lending capacity.
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