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Open Market Operation and Operation twist

  Aug 08, 2020

Open Market Operation and Operation twist

Reserve Bank has decided to conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for ₹10,000 crores each on July 02, 2020 .

Q. What is Open Market Operations? 

Q. What is Operation twist? 

Q. Why is it needed?

Q. What is History of Operation Twist and how it started? 

A. In 1961, the John F Kennedy administration proposed a solution to revive the weak economy through lower longer-term interest rates while keeping short-term interest rates unchanged. This initiative is now known as ‘Operation Twist’ which was employed by the US Fed.

Q. What is Yield Curve? 

A. A yield curve is a graph of interest rate on all government bonds ranging from the short-term debt (one month) to long-term debt (could be high as 30 years).

Typically, the short term bond has lower interest rate compared with the long-term bond reflecting the higher perceived risk of the latter. Hence a graph of the interest rate of the short-term bond and longer-term will be an increasing line chart. This in technical parlance is called an upward sloping curve.