Directions: Identify the direct tool of monetary control used by the Reserve Bank of India.

Consider the following measures:

I. Cash Reserve Ratio (CRR)

II. Purchase or sale of government securities in the open market

Which of the measures listed above is a direct instrument of monetary policy?

The correct option is Only I.

Step 1: Overview of Monetary Policy Instruments
The Reserve Bank of India (RBI) implements monetary policy using two primary types of instruments: direct instruments and indirect instruments.

Step 2: Analyzing Direct Instruments
Direct instruments are regulatory tools that directly alter the quantum of liquidity or credit in the banking system without relying on market mechanisms.
- Cash Reserve Ratio (CRR) (Measure I): CRR is the specified percentage of Net Demand and Time Liabilities (NDTL) that commercial banks are required to hold as cash reserves directly with the RBI. When the RBI changes the CRR, it immediately and directly impacts the liquid funds available with commercial banks for lending. Therefore, CRR is a direct instrument of monetary policy.

Step 3: Analyzing Indirect Instruments
Indirect instruments operate through financial markets to influence interest rates, money supply, and overall credit conditions indirectly.
- Open Market Operations (OMO) (Measure II): OMO involves the purchase or sale of government securities in the open market by the RBI. By buying or selling these securities, the RBI indirectly adjusts bank reserves and market liquidity through market transactions. Therefore, purchase or sale of government securities is an indirect instrument of monetary policy.

Conclusion:
Since CRR is a direct tool and OMO is an indirect tool, only Measure I is a direct instrument of monetary control.