ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Effects of Sledge-Hammer Sterilisation

Money supply growth has slowed down considerably this year, in spite of a phenomenal increase in bank credit to the commercial sector. This deceleration is the result of the market stabilisation scheme (MSS) of sterilisation which is hard hitting in nature as it absorbs liquidity without leaving any scope for reversal and its secondary effect contributes to a contraction in monetary growth. Such straightjacket sterilisation can impart serious contractionary impulses on money growth and eventually on effective demand, leading to a recession as the intermediary impact may be seen in rising interest rates.

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