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Monetary cash reserve arrangement

The Monetary Cash Reserve arrangement (MCR) used to be the main instrument of monetary policy and was effective until March 1, 2002. The Bank abandoned this direct instrument of monetary policy in favor of more indirect instruments.

The MCR entailed a ceiling on credit extension to the private sector and the government sector. Credit extension in excess of the ceiling was subject to a penalty.

The rationale behind the MCR was that restricting domestic credit to the private sector controls private sector expenditures and hence the imports, which is favorable for the balance of payments. The restriction on government net domestic credit was imposed to minimize monetary financing of the budget deficits.

Last updated: 14.08.2019 09:08