Economics • Banking & FinanceHard
What is the primary operational purpose of Open Market Operations (OMOs) conducted by the Reserve Bank of India?
A. To regulate daily retail commodity prices across agricultural mandis
B. To purchase or sell government securities outright in the secondary market to manage systemic liquidity and influence base money✓ Correct Answer
C. To provide direct equity financing to newly established micro, small, and medium enterprises
D. To fix exchange rates for foreign currency transactions conducted by commercial banks
💡 Solution & Explanation
Open Market Operations involve the outright purchase or sale of government securities by the Reserve Bank of India to adjust rupee liquidity conditions in the economy. Selling securities absorbs excess liquidity from the banking system, whereas purchasing securities injects liquidity and expands reserve money. These operations complement repo auctions in executing monetary policy. Managing durable liquidity through open market operations ensures smooth transmission of interest rate signals.
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