Open Market Operations:
The Reserve Bank of India (RBI) recently announced its plan to infuse Rs 1.9 lakh crore into the banking system through open market purchases of government securities and USD/INR swaps.When the RBI feels that there is excess liquidity in the market, it resorts to the sale of government securities, thereby sucking out the rupeeSelling securities removes money from the system, raises interest rates, makes loans more expensive, and decreases economic activity. However, when liquidity is sucked out, it can lead to a spike in bond yields as the RBI will release more government securities into the market, and bond buyers demand more interest rate on these securities.
