Question

Give your views on the following:

Moral Suasion

Answer 1

Moral suasion is a method used by the central bank to influence the credit policies of commercial banks through advice, requests, or informal pressure rather than legal force. It encourages banks to act in the interest of the economy, such as by restricting credit during inflation. While it promotes cooperation and avoids strict control, its success depends on how willing banks are to follow the central bank’s guidance.