Moral Suasion

Question 1

Questions

Answer 1

Answers

Question 2

What is moral suasion?

Answer 2

Moral suasion is a tool used by central banks to persuade banks and other financial institutions to take specific actions. It involves using communication and influence rather than regulations or force.

Question 3

Provide three examples of how the RBI Governor might use moral suasion.

Answer 3

• Urging banks to lower their lending rates after a repo rate cut. <br></br> * Encouraging banks to expand into rural areas for greater financial inclusion. <br></br> * Requesting state governments to control fiscal deficits to improve the effectiveness of monetary policy.

Question 4

How does publicity differ from moral suasion?

Answer 4

Moral suasion focuses on private communication and persuasion within the financial sector. <br></br> Publicity involves using public platforms (media, speeches, etc.) to create public opinion and indirectly pressure institutions.

Question 5

Why might an RBI Governor use both moral suasion and publicity?

Answer 5

The combination is a powerful strategy. Moral suasion attempts to achieve results through cooperation, while publicity can be used to generate additional pressure if banks or other institutions are resistant to change.