Which monetary policy instrument involves the Reserve Bank of India purchasing or selling government securities in the open market to regulate liquidity?

💡 Solution & Explanation

Open market operations refer to the outright purchase or sale of government securities by the central bank to inject or absorb liquidity in the banking system. Cash reserve ratio requires banks to maintain a specified percentage of net demand and time liabilities as cash balances with the central bank. Statutory liquidity ratio mandates holding specified liquid assets as a proportion of total deposits. Open market operations serve as a flexible tool for fine-tuning short-term money supply and interest rates.