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In the context of Indian economy, ‘Open Market Operations’ refers to:
- a)Borrowing by scheduled banks from the RBI
- b)Lending by commercial banks to industry and trade
- c)Purchase and sale of government securities by the RBI
- d)None of the above
Correct answer is option 'C'. Can you explain this answer?
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In the context of Indian economy, ‘Open Market Operations’...
The Reserve Bank of India (RBI) announced a surplus transfer of ₹99,122 crore for the 9-month period from July 2020 to March 2021.
- The higher-than-expected dividend or surplus transfer to the government comes as the government is expecting a sharp sequential fall in tax collections due to the severe second wave of COVID-19 which has forced lockdowns in several States.
- This surplus likely reflects the central bank’s higher income from their open market operations as well as receipts from FX sales.
- The government had budgeted to receive a surplus of about ₹50,000 crore from the RBI to be accounted for in the budget estimates for 2021/22, while in the previous full accounting year, the RBI had transferred ₹57,128 crore as surplus.
- Barring 2018/19, this is the highest ever transfer by the RBI in an accounting period. In FY19, ₹1.76 lakh crore was transferred to the government which included a one-time transfer of extra reserves.
- The government is likely to find it challenging to meet its privatisation and disinvestment target of $24 billion while goods and services tax (GST) revenues are also likely to fall.
- The RBI also decided to maintain a Contingency Risk Buffer at 5.50% in line with recommendations of the Bimal Jalan Committee report.
- RBI will move to an April to March accounting year from 2021/22, from a July to June year.
Open market operations or OMOs are conducted by the Reserve Bank of India (RBI) by way of sale and purchase of G-Secs (government securities) to and from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis. When the Reserve Bank feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.
Hence, option (c) is the correct answer.
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In the context of Indian economy, ‘Open Market Operations’ refers to:a)Borrowing by scheduled banks from the RBIb)Lending by commercial banks to industry and tradec)Purchase and sale of government securities by the RBId)None of the aboveCorrect answer is option 'C'. Can you explain this answer?
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