RESERVE BANK OF INDIA HAS ANNOUNCED OPERATION TWIST CUM OMO

RESERVE BANK OF INDIA HAS ANNOUNCED OPERATION TWIST CUM OMO

Context

The Reserve Bank of India has announced Operation Twist cum OMO(Open Market Operation) for the first time.

Details

• Under the initiative, government securities worth Rs 20,000 crore will be purchased by the RBI and securities worth Rs 15,000 crore will be sold on 10 March.
• The act will result in an Operation Twist of Rs 15,000 crore with open market operations of Rs 5000 crore.
• The decision has been taken by RBI to stabilize yields and lower interest rates by using different tools available in its jurisdiction.

Open Market Operations

• Open Market Operations (OMO) is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.
• OMOs are conducted by the RBI by way of sale or purchase of government securities (g-secs) to adjust money supply conditions.
• The central bank sells g-secs to remove liquidity from the system and buys back g-secs to infuse liquidity into the system.
• These operations are often conducted on a day-to-day basis in a manner that balances inflation while helping banks continue to lend.
• RBI carries out the OMO through commercial banks and does not directly deal with the public.
• The RBI uses OMO along with other monetary policy tools such as repo rate, cash reserve ratio and statutory liquidity ratio to adjust the quantum and price of money in the system.