RBI buys Rs 10,000 crore via OMOs

The Reserve Bank of India (RBI) bought Rs 10,000 crore of bonds through its open market operations (OMOs). This is the third OMO purchase this financial year and fourth overall. OMO is a liquidity management tool of the central bank; OMO was done to ease liquidity in the bond market. The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.
Open market operations are the principal tools of monetary policy. This technique is used to adjust the bank rate – the rate at which banks borrow reserves from each other.

Monetary policy is the actions of a central bank that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves).
There are two types of monetary policy, expansionary and contractionary. Expansionary monetary policy increases the money supply in order to lower unemployment, boost private-sector borrowing and consumer spending, and stimulate economic growth. Often referred to as “easy monetary policy,” this description applies to many central banks since the 2008 financial crisis, as interest rates have been low and in many cases near zero.
Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation; while sometimes necessary, contractionary monetary policy can slow economic growth, increase unemployment and depress borrowing and spending by consumers and businesses.

Fiscal policy refers to taxes and government borrowing and spending.
Quantitative Easing
Monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.
Typically, central banks target the supply of money by buying or selling government bonds. When the bank seeks to promote economic growth, it buys government bonds, which lowers short-term interest rates and increases the money supply. This strategy loses effectiveness when interest rates approach zero, forcing banks to try other strategies in order to stimulate the economy.
QE targets commercial bank and private sector assets instead, and attempts to spur economic growth by encouraging banks to lend money


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