Three monetary policy tools and their influence on money supply and market interest rate

Generalized monetary policy tools, also known as fixed-term and conventional monetary policy tools, are the three traditional monetary policy tools, commonly known as deposit reserve policy, rediscount policy and open market business.

1. Deposit reserve policy. The deposit reserve policy means that the central bank sets the deposit reserve ratio for the deposits of commercial banks and other monetary institutions, and forces commercial banks and other monetary deposit institutions to pay the deposit reserve in accordance with the prescribed ratio; The central bank adjusts the statutory deposit reserve to increase or decrease the excess reserve of commercial banks, thus affecting the money supply.

2. rediscount policy. Rediscount policy is a means for the central bank to influence the credit scale and market interest rate of commercial banks by raising or lowering the rediscount rate, so as to achieve the goal of monetary policy.

3. Open market business. The so-called "open market business" refers to a monetary policy means by which the central bank publicly buys and sells securities in the financial market to change the reserves of deposit-taking monetary institutions such as commercial banks, thus affecting the money supply and interest rates and achieving monetary policy objectives.