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📈 EconomyUPSC 2023Fundamentals of Economy

Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilization’?

aConducting ‘Open Market Operations’
bOversight of settlement and payment systems
cDebt and cash management for the Central and State Governments
dRegulating the functions of Non-banking Financial Institutions
✓ Correct answer: a) Conducting ‘Open Market Operations’
ExplanationThe Reserve Bank of India (RBI) employs Open Mar- ket Operations (OMOs) as a primary tool for sterilization.OMOs involve the buying and selling of government securities in the open market.When the RBI sells government securities, it ab- sorbs liquidity from the banking system, effectively neutralizing the increase in money supply resulting from its foreign exchange interventions.This process helps in maintaining monetary sta- bility and controlling inflation.143

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