Question

What is meant by open market operations? How does it act as method to control credit?

Answer 1

Open market operations: It is one of the most important quantitative instruments to control credit. It refers to the sale and purchase of government and other approved securities by the central bank in the money and capital market. When RBI aims at expansion of bank credit during the period of recession, it purchases securities from the market and vice versa. This is how credit is controlled in both boom and condition of recession.