Open Market Operations (OMO) are a key tool used by the central bank (RBI) to manage liquidity and influence interest rates and credit availability in the economy, thereby controlling the money supply. Buying securities injects money into the system, while selling securities withdraws money.
Consider the following statements: Statement 1 : Open market operations refer to the buying and selling of Government Securities in the open market by RBI Statement 2 : By selling Government securities, RBI reduces the money supply
Asked in GPSC Prelims CSP 2 2022 · Topic: Money & Banking (Monetary Policy: Objectives, Instruments (quantitative and qualitative), and Transmission Mechanism)
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Answer: A. Both Statements 1 and 2 are correct and state‐ ment 2 is the correct explanation for statement 1
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