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Operation Twist
December 23 , 2019
1831 days
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- The Reserve Bank of India (RBI) will simultaneously buy (government bonds maturing in 2029) and sale (short-term bonds maturing in 2020) government securities worth ₹10,000 crore each under its open market operations.
- It is a move aimed at managing the yields and to make long term borrowing cheaper.
- As the central bank buys long term securities), the rise in demand for them leads to lower long-term yields.
- Eventually, it is long term interest rates that matter for investment and growth in the economy.
- This way the yield curve becomes “twisted” as short-term rates are pushed up and long-term rates are pushed down.
- The central banks opt for this measure when despite lowering interest rates, the long-term interest rates remain high.
- 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.
About OT
- This policy measure of buying long-term bonds and selling short-term ones is known as Operation Twist (OT).
- The US has announced OT twice, the first time in 1961 during John F Kennedy and the second in 2011 during Obama.
- Japan also announced its own version of OT called as Qualitative and Quantitative Easing program (QQE) in 2013.
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