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Monetary policy tools: Expansionary Open Market Operations (OMOs) by RBI imply what action? Identify how RBI injects liquidity via securities operations. Choose the correct option.

Q: Monetary policy tools: Expansionary Open Market Operations (OMOs) by RBI imply what action? Identify how RBI injects liquidity via securities operations. Choose the correct option.

Mechanism When RBI buys securities, it credits banking system reserves, expanding money supply and lowering short-term rates. Final Answer RBI buys government securities from the market (injects liquidity)

Difficulty: Easy

RBI buys government securities from the market (injects liquidity)
RBI sells government securities to the market (drains liquidity)
RBI raises CRR sharply
RBI fixes a higher bank rate

Correct Answer: RBI buys government securities from the market (injects liquidity)

Explanation:

Mechanism

When RBI buys securities, it credits banking system reserves, expanding money supply and lowering short-term rates.

Final Answer
RBI buys government securities from the market (injects liquidity)

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