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Operation Twist

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    2nd Sep, 2020
  • Recently, the Reserve Bank of India (RBI) has announced several measures to ensure orderly market conditions and smooth financial conditions.
  • These measures include two more tranches of special Open Market Operations (OMOs) in bonds and a hike in the Held-To-Maturity (HTM) limit under the Statutory Liquidity Ratio (SLR) for banks.
  • Operation Twist is the name given to a USA Federal Reserve monetary policy operation, which involves the purchase and sale of government securities to boost the economy by bringing down long-term interest rates.
  • It is now being used for similar measures taken by RBI in Indian context as well.
  • Open Market Operations is the simultaneous sale and purchase of government securities and treasury bills by RBI.
  • The objective of OMO is to regulate the money supply in the economy.
  • RBI carries out the OMO through commercial banks and does not directly deal with the public.
  • OMO is one of the quantitative tools that RBI uses to smoothen the liquidity conditions through the year and minimize its impact on the interest rate and inflation rate levels.

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