Which tool does the RBI use to manage liquidity in the banking system?

Which tool does the RBI use to manage liquidity in the banking system?

Step 1: Understand what liquidity means. Liquidity refers to how easily money can flow in and out of the banking system.
Step 2: Know that the Reserve Bank of India (RBI) is responsible for managing the country's money supply and liquidity.
Step 3: Learn about Open Market Operations (OMO). This is a tool used by the RBI.
Step 4: Realize that OMO involves the buying and selling of government securities, which are financial instruments issued by the government.
Step 5: Understand that when the RBI buys government securities, it injects money into the banking system, increasing liquidity.
Step 6: Conversely, when the RBI sells government securities, it takes money out of the banking system, decreasing liquidity.
Step 7: Conclude that OMO is a key tool used by the RBI to manage how much money is available in the banking system.

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