Economics • Banking & FinanceEasy
What does the term 'Open Market Operations (OMOs)' signify in the monetary policy toolkit of the Reserve Bank of India?
A. Direct regulation of commercial bank lending rates for priority sector priority advances
B. The purchase and sale of government securities in the secondary market to modulate systemic liquidity✓ Correct Answer
C. The auction of foreign currency reserves to stabilize the exchange rate of the rupee against the dollar
D. Setting mandatory reserve requirements for non-banking financial companies operating nationwide
💡 Solution & Explanation
Open market operations involve outright purchase or sale of government securities by the Reserve Bank of India to absorb or inject liquidity into the banking system. Selling securities drains liquidity by reducing commercial bank reserves, whereas buying securities injects liquidity. It serves as a quantitative monetary policy instrument complementing repo rate adjustments.
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