Prof. Anand S
However, it trades only for specific purposes in line with its mandate to regulate the money supply and interest rates. The RBI is the government's debt manager. The government wants to borrow ₹12 lakh crores in the market. When so much money is borrowed, the price of money (Interest rate) will rise.RBI will intervene to create favourable conditions to support the government's borrowing programme.
Open Market Operations, or OMOs, are the purchase and sale of Government Securities. Sometimes the RBI may simultaneously buy and sell securities. Read the /
These are debt instruments issued by the government to borrow money. The two main categories are:
<aside> 💸 Government securities are promissory (conveying or implying a promise) notes with guaranteed payment at a zero-coupon rate and issued at a discounted rate.
When the RBI wants to streamline money supply and interest rates, it conducts open market operations which are a monetary tool besides reserve ratio and policy rates. When it purchases bonds in the open market, it raises the price of bonds and reduces rates. As a result, there is an inverse relationship between bond prices and interest rates. Because it releases money through purchases, the money supply increases, making money less valuable, reducing interest rates and vice versa.
Control the supply of money or existing liquidity in the economy
The RBI conducts OMOs through commercial banks.
RBI announces Operation Twist worth ₹10,000 crore on 25 Feb