Question

What is moral suasion?

Answer 1

Moral suasion is a qualitative method of credit control used by the central bank to influence the lending behaviour of commercial banks through advice, suggestions, and informal pressure rather than legal measures. It involves persuading banks to follow the central bank’s policies in matters like reducing or increasing credit, avoiding speculative lending, or supporting government borrowing. Although not legally binding, moral suasion is often effective because of the authority and credibility of the central bank.