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Jemshah
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Asked: 2022-12-29T04:03:43+00:00 In:

State three tools that may be used by the Central Bank of Kenya to control credit in the economy. (3 marks)July 2020

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State three tools that may be used by the Central Bank of Kenya to control credit in the economy. (3 marks)July 2020

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    1. Reserve requirements: The Central Bank of Kenya can require banks to hold a certain percentage of their deposits in reserve, which limits their ability to lend out money and helps to control the supply of credit in the economy.
    2. Interest rates: The Central Bank of Kenya can also use its power to set interest rates to influence the demand for credit. For example, by raising interest rates, the Central Bank can make borrowing more expensive, which may discourage people and businesses from taking out loans and reduce the overall demand for credit.
    3. Open market operations: The Central Bank of Kenya can also use open market operations to buy and sell government securities in the open market, which can affect the supply of money and credit in the economy. For example, if the Central Bank buys securities from banks, it will increase the banks’ reserve balances and allow them to lend out more money, which can increase the supply of credit in the economy. Conversely, if the Central Bank sells securities to banks, it will reduce their reserve balances and decrease the amount of money they can lend, which can help to reduce the supply of credit.
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