Loan rates as a selective credit control

When the monetary authorities set interest rates above or below market-clearing levels, loan markets are in disequilibrium. The success of a policy that is aimed at favoring some sectors of the economy with relatively low loan rates depends on the state of the various loan markets. That policy will be most definitely effective when loans to the favored sectors are in excess demand while other types of loans are in excess supply. It may be less successful when all loans are in excess supply and counterproductive when they are in excess demand.