Which RBI tool refers to buying and selling of bonds issued by the Government in the open market?

Open Market Operations 

- Open Market Operations (OMOs) are  used by the Reserve Bank of India (RBI) as a key monetary policy tool to manage liquidity in the Indian banking system and influence interest rates. The RBI conducts OMOs by buying or selling government securities in the open market.

- When the RBI wants to infuse liquidity into the banking system, it conducts Open Market Purchases. By purchasing government securities from banks and other financial institutions, the RBI increases the money supply in the economy. This injection of funds allows banks to have more reserves, making it easier for them to lend to businesses and consumers. It also helps in bringing down short-term interest rates, making borrowing cheaper and promoting economic growth.

- On the other hand, if the RBI aims to reduce liquidity in the banking system, it conducts Open Market Sales. By selling government securities to banks and financial institutions, the RBI absorbs money from the system, leading to a decrease in the money supply. This action helps in controlling inflation and increases short-term interest rates, making borrowing more expensive and curbing excessive economic activity.

- OMOs are considered one of the effective tools to maintain price stability, control inflation, and regulate economic growth in India. The RBI carefully uses these operations, along with other monetary policy tools, to achieve its objectives and maintain financial stability in the country.