Consider the following statements regarding Open Market Operations 1 It is a quantitative monetary p...........

Economics- Phase (I & II) Monetary and Fiscal Policy

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Consider the following statements regarding Open Market Operations:

1. It is a quantitative monetary policy tool of RBI to adjust the rupee liquidity conditions

in the market.

2. When there is excess liquidity in the market then RBI buys government securities

through open market operations.

3. Under this system, the RBI sells securities in the market when it wants to reduce the money supply in the market.

Which of the above statements is/are correct?

1 only

2 only

Both 1and 2

Both 1and 3

None of the above

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Explanation:

Open market operations, or OMOs, are the purchase and sale of G-Secs by the Reserve Bank of India (RBI) on the Centre’s behalf to streamline money supply and interest rates. OMOs aim to control the supply of money or existing liquidity in the economy. In case of an inflationary situation, RBI adopts a contractionary monetary policy i.e., it sells government securities and absorbs the excess money from the financial flow. Amid a recessionary trend, RBI is keen to boost money supply in the market and ensure adequate credit availability for investment and production. So, it buys securities, increasing the money supply