OPEN MARKET OPERATION

OPEN MARKET OPERATION :
- A monetary policy instrument which is used by the Reserve Bank mainly with a view to affect the reserve base of the banks and thereby the extent of monetary expansion.
- It also, in the process, helps to create and maintain a desired pattern of yield on government securities and to assist the government in raising resources from the capital market.
- Under the RBI Act, the RBI is authorised to purchase and sell the securities of the Union Government and State Government of any maturity and the security specified by the Central Government on the recommendation of Bank's Central Board.
- Presently the RBI deals only in the securities issued by the Union Government.
- Open market operations are by way outright sale and purchase of securities through the Securities Department nad repo and reverse repo transactions.