Qualitative Tools of

Monetary policy
SHIZA HASNAIN (BS-IAS-125-S-F21)
Moral Suasion
Moral suasion is a step taken by the
central bank for convincing and advising
the commercial banks to adhere to the
policies and act in the desired manner
through general interaction.
Critical Elements:

A Qualitative Act of Directed by

Tool Persuasion Central Bank
Benefits of Moral Suasion

Acts as a Back-up Policy Tool

Aims at Economic Growth and

Development

Efficient during Financial Crisis or

Emergency Situations
Limitations of Moral Suasion:

Less Effective in Less Useful for

Not Useful in
Developing a Large Number
Isolation
Jurisdictions of Stakeholders
DIRECT ACTION :
This method is most extensively used by the central bank
to enforce both Qualitative and Quantitative credit controls.
Direct action refers to the directions issued by the central
bank to the commercial banks regarding their lending and
investment policies.
Practical Forms :

a) The central bank may refuse to rediscount the Bills of exchange of commercial banks whose credit
policy is not in line with the general Monetary policy of the central bank.

b) The central bank may charge a penal rate of Interest, over and above the bank rate, on the money
demanded by the bank beyond the Prescribed limit.

c) The central bank may refuse to grant more credit to the banks whose Borrowings are found to be in
excess of their capital and reserves.
Thank you