Indirect Monetary Policy:

There are two types of monetary policy: General or indirect being the first and qualitative, selective
or direct being the other. They affect the level of aggregate demand through the supply of money,
cost of money and availability of credit.

Legal Reserve requirements:

All banks are required to hold a minimum percentage of deposits as reserve. Changes in required
reserve ratios can have important influence on the money supply. Changes in reserve requirements
are made sparingly because they present too large change in monetary policy.

Capital requirements:

All banks are required to hold a certain percentage of their assets as capital, a rate which is
established by the Central Bank or the banking supervisor.

Capital adequacy:

Capital adequacy is important, it is defined and regulated by the Bank for international settlements,
and central bank in practice generally apply strict rules. To enable open market operations, a central
bank must hold foreign exchange reserves. It will often have some influences over any official or
mandated exchange rates: some exchange rates are managed, some are market based and many
are somewhere in between.

Reserve requirement:

Another significant power the Central bank holds is the ability to establish reserve requirement for
other banks. The other requirement is that a percent of liability is being held as cash or deposited
with Central Bank or other agency; limits are set on the money supply.

Discount Rate Policy:

Discount rate is the interest rate at which the central bank stands ready to lend reserves to the
commercial banks. There are three key interest rates for the banks: the interest rate on main
refinancing operations, the rate on the deposit facility, which banks may use to make overnight
deposits, the rate on the marginal lending facility, which offers overnight credit to banks.