Three magic weapons of monetary policy

1, legal deposit reserve ratio: refers to the ratio of the deposit reserve of financial institutions to all deposits stipulated by the central bank, and the central bank can adjust the money supply in the market by adjusting the deposit reserve ratio;

2. rediscount rate: refers to the interest rate at which commercial banks discount unexpired commercial bills to the central bank. The central bank can adjust the credit scale in the market by adjusting the rediscount rate, thus affecting the money supply;

3. Open market business: refers to the public trading of bonds by the central bank. The central bank regulates the money supply through open market operations.

These are the three magic weapons of monetary policy.

Monetary policy during inflation

When there is inflation in the market, inflation means that money supply exceeds demand, currency depreciates and prices rise. The state can help regulate the economy by adopting a tight monetary policy, increasing the deposit reserve ratio and reducing the money supply in the market. Increasing the rediscount rate will make the discount cost of banks higher, thus reducing the credit scale and money supply; We can also reduce the money supply by selling bonds publicly and recycling the money in the market, thus curbing inflation.