INTRODUCTION-

Sterilization is a method employed by the central bank of a nation to counteract the impact on the money supply caused by a balance of payment surplus or deficit.
This may also include open market operations, which are carried out by the central bank to ensure a balance between foreign exchange operations.
More generally, it can encompass any monetary policy that aims to maintain the domestic money supply constant, regardless of external factors or changes.

QUANTITATIVE METHODS –

These instruments have an impact on the total amount of money and credit available in the economy.

A) BANK RATE–

The rate at which RBI gives credit to commercial bank a low or high banks rate encourages bank to keep a small proportion of their eyes deposit as reserve within result either reduce the law of credit or increase the flow of credit.

B) OPEN MARKET OPERATIONS–

It refers to the buying or selling of securities by the Reserve Bank of India (RBI) in the open market.

(More ratios like credit reserve ratio, statutory liquidity ratio do the same thing they help to regulate the flow of money supply in the market).

RBI plays an important role in controlling external shocks suppose foreigners decide to make an investment in indian bonds the seller of the bond exchanges the foreign currency into rupees from a commercial bank than the commercial bank deposit that currency in RBI which increase the assets and liability in the balance sheet and in order to overcome from the situation RBI sales the security in the open market of the economy against adverse external environment of money supply.

In this way RBI stabilizes the money supply against external shocks.