When the RBI makes open market operations by sale of securities the money supply in the banking system?

Reduces

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Increases

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Is not affected at all

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Difficult to say anything

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Solution

The correct option is A Reduces
Open market operation (OMO) is a monetary policy by the central bank in which the bank deals in the sale and purchase of securities in the open market to control the supply of money in the economy. By selling the securities, the central bank soaks liquidity from the economy which reduces the money supply in the economy.

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Similar questions

How does the "purchase of government securities in the open market" affect the money supply?

By purchasing government securities in the open market, the central bank intends to release greater money supply in the market.

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