BANKING AFFAIRS

Detailed explanation-1: -Open market operations refer to the selling and purchasing of the treasury bills and government securities by the central bank of any country in order to regulate money supply in the economy. It is one of the most important ways of monetary control that is exercised by the central banks.

Detailed explanation-2: -Open market operations (OMO) of RBI comprise outright sale and purchase of securities, Repo and Reverse Repo operations through LAF. While the outright OMO are directed at influencing enduring liquidity, the LAF OMO operations target the temporary liquidity in the system.

Detailed explanation-3: -RBI’s open market operation transactions are carried out with a view to regulate liquidity in the economy, prices of essential commodities and inflation. Open market operations refer to sale and purchase of securities in the open market.

Detailed explanation-4: -Open market operations refers to buying and selling of securities in an open market, in order to affect the money supply in the economy. The selling of securities by Reserve Bank of India will wipe out extra cash balance from the economy, thereby limiting the money supply resulting in controlled credit creation.

Detailed explanation-5: -Open market operation transactions are done by RBI to regulate both inflation and money supply.