Q64. Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilization’?
a. Conducting ‘Open Market Operations’
b. Oversight of settlement and payment systems
c. Debt and cash management for the Central and State Governments
d. Regulating the functions of Non-banking Financial Institutions
Question from UPSC Prelims 2023 GS Paper
Explanation :
Correct Answer – a. Conducting ‘Open Market Operations’
Sterilization and Open Market Operations
Sterilization refers to the process of managing the impact of foreign currency inflows on the domestic money supply. The Reserve Bank of India (RBI) achieves this through conducting ‘Open Market Operations’ (OMOs). OMOs involve the buying and selling of government securities in the open market to adjust the money supply in the economy. When the RBI wants to reduce the money supply, it sells government securities, and when it wants to increase the money supply, it buys government securities. This helps in maintaining price stability and controlling inflation.
