Indian being a developing economy driven by two major policies namely Fiscal and Monetary Policy. The Monetary Policy being solely drafted by the Reserve Bank of India(RBI).
Being at the driving seat along with the central government, the central bank has come up with an effort to provide some stability to the plunging economy.RBI on December 19, 2019 after reviewing the liquidity and the market situation and after assessing the evolving financial condition decided to conduct the simultaneous purchase and sale of the government securities under the Open Market Operations(OMO) for Rs 10,000 crore on December 23, 2019. The proposed process referred to as "Operation Twist".
1. What is Operation Twist and why it is called so?
In a first,the Reserve Bank of India( RBI) announced a simultaneously sale and purchase of government bonds under the (OMO) mechanism. RBI will sell four securities maturing in 2020 and will purchase the 6.45% government bonds maturing in 2029.
This process is in line of the "Operation Twist" that was adopted by the US Federal Reserve way back in 2013.
Under the proposed process, the Reserve Bank will use the proceeds from the sale of short term securities to buy long term debt papers, the resultant ultimately leading to ease of interest rates on the long term papers. Hence, the process of first buy and sale is what ultimately lead to the term "Twist".
2. What was Operation Twist in Us?
The US Federal Reserve implemented the operation Twist program in late 2011 and 2012 to simulate the economy.
The operation gained its nickname due to the FED initiative of buying the long term treasuries and simultaneously selling some of the shorter-dated issues, that it already held with an ultimately aim to ease the economy by bringing down long term interest rates.
3. How it will benefit the Indian economy?
The major purpose of Operation Twist is to lower the long term yields. This will help to boost the economy by making long term loans especially those concerned with Car loans, House Loans and long term business project financing less expensive.
Hope so, the initiative by the central bank could enhance consuming power and ultimately leading to the flow of resources in the economy.
Moreover, the reference to the scheme so proposed by the RBI has been given in below link:
Kindly refer to link for more details:
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