Q.Explain the role of RBI in the money market.

RBI's role in the money market goes well beyond simply making rules — it is also the market's most active daily operator.

The RBI's role in the money market, under powers granted by the Reserve Bank of India Act, 1934, can be explained under two heads:

As regulator:

• Frames rules and guidelines governing money-market instruments (who can issue Commercial Paper/Certificates of Deposit, permissible maturities) and the conduct of participants.
• Supervises commercial banks and financial institutions to ensure adequate liquidity and sound practice, since instability here can spread quickly through the banking system.
• Manages the issuance of Treasury Bills on behalf of the Government of India, deciding the amount, maturity, and timing of issues.

As the institution managing liquidity (monetary-policy operations):

• Conducts open market operations — buying/selling government securities — to inject or absorb liquidity as its policy stance requires.
• Conducts repo and reverse repo operations, lending to banks (repo, injecting liquidity) or borrowing from banks (reverse repo, absorbing liquidity) against government securities. …

Describing RBI's role only as "regulator," omitting its equally important operational role of actively conducting repo/reverse repo a …