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.
General Knowledge
Indian Economy
Difficulty: Easy
Choose an option
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ARBI buys government securities from the market (injects liquidity)
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BRBI sells government securities to the market (drains liquidity)
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CRBI raises CRR sharply
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DRBI fixes a higher bank rate
Answer
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 AnswerRBI buys government securities from the market (injects liquidity)