Which of the following statements are true?

(A) Quantitative tools control the extent of money supply by changing the CRR.

(B) There are two types of open market operations– outright and upright.
(C) A fall in the bank rate can decrease the money supply.
(D) Selling of a bond by RBI leads to reduction in quantity of reserves.
(E) The RBI can influence money supply by changing the rate at which it gives loan to the commercial banks.

Choose from the options given below :

The correct option is (A), (D) and (E) only.

Let us analyze each statement step-by-step to understand why this option is correct:

Statement (A): Quantitative tools control the extent of money supply by changing the CRR.
This statement is true. Quantitative instruments of monetary policy, such as the Cash Reserve Ratio (CRR), are designed to regulate the total volume of credit and money supply in the economy. By raising the CRR, commercial banks are required to keep more cash reserves with the central bank (RBI), reducing their lending capacity and decreasing the money supply. Conversely, lowering the CRR increases bank reserves available for lending, thereby expanding the money supply.

Statement (B): There are two types of open market operations– outright and upright.
This statement is false. The two main types of Open Market Operations (OMO) conducted by the RBI are outright transactions (which are permanent in nature) and repo transactions (which are temporary and involve repurchase agreements). There is no term called "upright" transactions in monetary economics.

Statement (C): A fall in the bank rate can decrease the money supply.
This statement is false. The bank rate is the interest rate at which the central bank lends long-term funds to commercial banks. A fall in the bank rate makes borrowing cheaper for commercial banks. This encourages them to borrow more and lower their own lending rates, prompting businesses and consumers to take more loans. Consequently, a fall in the bank rate leads to an increase in the money supply, not a decrease.

Statement (D): Selling of a bond by RBI leads to reduction in quantity of reserves.
This statement is true. When the RBI sells government securities or bonds in the open market, commercial banks and public buyers pay the RBI for these bonds. This direct outflow of cash from the commercial banking system to the RBI reduces the cash reserves held by commercial banks, thereby shrinking the monetary base and checking credit expansion.

Statement (E): The RBI can influence money supply by changing the rate at which it gives loan to the commercial banks.
This statement is true. The rate at which the RBI lends money to commercial banks (such as the Bank Rate and the Repo Rate) directly influences the cost of funds for banks. By adjusting these policy rates, the RBI can control the credit creation capability of commercial banks and ultimately manage the money supply in the economy.

Therefore, statements (A), (D), and (E) are the only true statements.