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Operation Twist : Most Important

Operation Twist' is RBI's simultaneous selling of short-term securities and buying of long term securities through open market operations (OMO). Under this mechanism, the short-term securities are transitioned into long-term securities.
Whenever there is a long-term investment deficit in the country and the investors are hesitant to make long-term investments in the economy, the government jumps in to revive growth by lowering the interest rate for long-term investment ventures. RBI carried out the first phase of 'Operation Twist' on December 23, 2019, when it sold short-term securities worth Rs 10,000 crore and bought long-term securities worth the same value. This operation involves buying and selling government securities simultaneously in order to bring down long-term interest rates and bolster short-term rates. There is an inverse relationship between the bond prices and their yields. As the central bank buys long-term securities (bonds), their demand rise which in turn pushes up their prices. However, the bond yield comes down with an increase in prices. Yield is the return an investor gets on his (bond) holding/investment. The interest rate in an economy is determined by yield. Thus, lower long-term interest rates mean people can avail long-term loans (such as buying houses, cars or financing projects) at lower rates. This also results in a dip in the expected returns from long-term savings which tilts the balance from saving towards spending. Hence, cheaper retail loans can help encourage consumption spending which is the largest GDP component in the economy. this lecture is all about everything related with Operation Twist.. Also watch the video on Coronomics from the link -- https://youtu.be/EmePHILx414 Stay connected for daily news analysis and Videos on burning topics of Economics. Also watch videos for motivation from our new video series Zindagi@aspirants from the link https://youtu.be/WBwgB-Cxf6U