UPSC Prelims 2023 Question on – RBI Sterilisation and Open Market Operations
Q. Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilisation’?
✅ Correct Answer: [A] Conducting Open Market Operations
Explanation:
Sterilisation refers to actions taken by the RBI to offset the impact of foreign exchange interventions on the domestic money supply.
The RBI primarily uses Open Market Operations (OMO) by buying or selling government securities to manage liquidity.
When foreign exchange operations inject excess liquidity into the economy, the RBI may sell government securities to absorb the excess money and prevent inflationary pressures.
Option B relates to payment system supervision, not sterilisation.
Option C concerns government debt and cash management.
Option D relates to regulation of NBFCs and other non-banking financial institutions.
