RAS question
Operation Twist by RBI involves:
Correct answer: (A) Simultaneous purchase of long-term and sale of short-term government securities.
Operation Twist by the RBI involves simultaneously buying long-term government securities and selling short-term government securities.
Explanation
Operation Twist is a special market operation in government securities. The RBI Bulletin describes it as buying GSECs with longer-term maturities, such as five-year and ten-year securities, while selling shorter-term GSECs with original or residual maturities of one to three years. That is why option A is right: the operation changes the maturity profile of RBI's government-security operations, not merely the total amount of liquidity. In the question's framing, buying long-term securities lowers long-term yields and selling short-term securities offsets liquidity injection, helping flatten the yield curve without changing net liquidity. The RBI source also links such operations to reducing term premia and improving monetary policy transmission.
Why the other options are wrong
- (B) Only purchasing government securities misses the paired sale leg, which is essential because Operation Twist simultaneously buys longer-term GSECs and sells shorter-term GSECs.
- (C) Changing the repo and reverse repo rates is a policy-rate action, whereas Operation Twist is conducted through open-market operations in government securities.
- (D) Currency swap operations involve foreign-exchange transactions, while Operation Twist works through buying and selling government securities of different maturities.
Concept
This tests monetary policy instruments, especially open-market operations and the yield curve. It recurs in RAS because RBI tools affect liquidity, interest rates and monetary-policy transmission, all core Indian Economy themes.