How open market transaction and moral suation promote growth and development
Answers
Both of them are Monetary Policy tools used by Central Banks, Reserve Bank of India (RBI) in India.
Open Market Operation (OMO) is buying and selling of government securities (G-Sec) by RBI to manage the liquidity in the market. If the economy is in recession, then RBI can buy the government securities from the market (from banks, investors etc.), thereby releasing liquidity in the market, which will boost demand and economic growth will be revived subsequently. The other way round is also possible, when there is inflation in the economy, RBI can resort to selling of the government securities, thereby reducing the liquidity from the market.
Moral Suation is used to persuade banks to do something specific. For example, if RBI wants to push for economic growth, RBI will try to persuade banks to lend more.
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