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Generate QuizWhat is the primary purpose of the 'Operation Twist' strategy occasionally employed by the RBI?
- To simultaneously increase the CRR and decrease the SLR
- To simultaneously sell short-term securities and buy long-term securities to flatten the yield curve
- To forcefully merge weak public sector banks with stronger ones
- To convert short-term corporate debt into long-term equity
Answer: To simultaneously sell short-term securities and buy long-term securities to flatten the yield curve
Operation Twist involves the central bank buying long-term bonds (pushing their prices up and yields/interest rates down) while simultaneously selling short-term paper to absorb the excess liquidity created. This softens long-term borrowing rates for infrastructure and housing without increasing the overall money supply in the economy.