Given below are two statements:
Statement I: The Reserve Bank of India conducts repo and reverse repo operations at various maturities, such as overnight, 7-day and 14-day.
Statement II: Outright open market operations have now become the main tool of monetary policy of the Reserve Bank of India.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Statement I: The Reserve Bank of India conducts repo and reverse repo operations at various maturities, such as overnight, 7-day and 14-day. — True. These are the maturities at which the RBI runs repo and reverse repo.
Statement II: Outright open market operations have now become the main tool of monetary policy of the Reserve Bank of India. — False. The main tool is repo and reverse repo. Outright operations are the permanent type of OMO.
NCERT (2026-27): “3.4 Policy Tools to Control Money Supply … There are two types of open market operations: outright and repo. Outright open market operations are permanent in nature: when the central bank buys these securities (thus injecting money into the system), it is without any promise to sell them later. … This type of agreement is called a reverse repurchase agreement or reverse repo. The rate at which the money is withdrawn in this manner is called the reverse repo rate. The Reserve Bank of India conducts repo and reverse repo operations at various maturities: overnight, 7-day, 14day, etc. This type of operations have now become the main tool of monetary policy of the Reserve Bank of India. …” |