Economics • Banking & FinanceMedium
What does the term 'Open Market Operations' refer to in the conduct of monetary policy by the Reserve Bank of India?
A. The purchase and sale of government securities in the open market to regulate money supply✓ Correct Answer
B. The direct lending of working capital to commercial retail borrowers without collateral
C. The auctioning of foreign exchange reserves to exporters at subsidized market rates
D. The regulation of interest rates charged by cooperative banks in rural districts
💡 Solution & Explanation
Open Market Operations involve the outright purchase or sale of government securities by the Reserve Bank of India to adjust the liquidity conditions in the economy. Selling securities absorbs liquidity from the banking system, while purchasing securities injects liquidity. This serves as a key quantitative instrument of monetary policy alongside repo rate adjustments.
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