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Asked by Divya Last Modified
Answer 
Bipin Kumar Thakur
Crash Course Expert with 15 years of teaching experience in commerce
If there is inflation then in such situation Central bank should reduce the money supply by increasing the bank rate, repo rate, cash reserve ratio, statuory liquidity ratio. It should sell bonds to commercial banks to reduce their lending capacity. In such situation Cenrtal bank pursue moral suasion i.e. not to lend specific sectors and they also pursue credit rationing.
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