If the RBI adopts an expansionist open market operations policy, this means that it will:
  • a)
    Buy securities from non-government holders
  • b)
    Sell securities in the open market
  • c)
    Offer commercial banks more credit in the open market.
  • d)
    Openly announce to the market that it intends to expand credit.
Correct answer is option 'C'. Can you explain this answer?

UPSC Question

By Mandir Kaur · Aug 08, 2020 ·UPSC
Kaushalaya answered 4 weeks ago
An OMO is an instrument of monetary policy which involves buying or selling of government securities from or to the public and banks. This mechanism influences the reserve position of the banks, yield on government securities and cost of bank credit.
The RBI sells government securities to control the flow of credit and buys government securities to increase credit flow. OMO makes bank rate policy effective and maintains stability in the government securities market.

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