RBI-OPEN MARKET OPERATION

1. To regulate the flow of credit in the economy, one of the measures adopted by RBI is 'Open Market Operation'. The term open market operation in this connection refers to- sale or purchase of short term or long term government securities by Reserve Bank.
2. Open market operations are employed by Reserve bank of India- to control the reserve base of banks, to minimize fluctuation in money supply, as an adjunct to Bank Rate to make it function more effectively.
3. In period of boom, which leads to economic instability, the Reserve Bank resorts to- sale in the market of first class securities in its possession to reduce the supply of money as a measure of open market operations.