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Difficulty: EasyCentral Bank: Functions and Monetary Policy Instruments

Which of the following is classified as a selective or qualitative instrument of monetary policy used by the Central Bank of Nigeria?

  1. Moral suasionAnswer
  2. B
    Open Market Operations
  3. C
    Bank rate policy
  4. D
    Cash Reserve Ratio

Answer

Moral suasion is classified as a selective credit control instrument.
Moral suasion is a qualitative or selective monetary control mechanism where the central bank uses persuasion, advice, and informal directives to guide commercial banks' lending policies towards specific priority sectors.

Step-by-Step Solution

1
Classify monetary policy instruments into quantitative (general) and qualitative (selective) categories.
Quantitative tools (such as OMO, bank rate, and reserve requirements) regulate the total volume of money supply and credit in the economy.
Understanding the distinction between tools that affect overall volume versus tools that target specific credit destinations.
2
Identify the nature of moral suasion.
Moral suasion uses appeals, guidelines, and informal requests to direct commercial bank credit toward specific sectors or behaviors without changing general reserve ratios.
This confirms moral suasion as a selective/qualitative monetary instrument.

Key Concept

Classification of Monetary Policy Instruments (Quantitative vs Selective Controls)
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Topics

Central Bank: Functions and Monetary Policy Instruments

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