What is sterilized intervention by RBI?

Sterilization is a form of monetary action in which a central bank seeks to limit the effect of inflows and outflows of capital on the money supply. Sterilization most frequently involves the purchase or sale of financial assets by a central bank and is designed to offset the effect of foreign exchange intervention.

What is sterilized and unsterilized intervention?

Intervention is the term used to describe a central bank’s purchase or sale of foreign exchange in the market in order to influence the exchange rate. If the intervention has no impact on the short- term interest rate, it is sterilised. If the short-term interest rate is affected, the intervention is non-sterilised.

What is difference between sterilized and unsterilized foreign exchange intervention?

Sterilization happens when authorities offset the purchase of foreign currencies or securities by selling domestic ones, therefore dropping its own money supply. The intervention is unsterilized if the Fed decides not to sell its own bonds in reserves on the open market.

What is sterilization in Indian economy?

Sterilisation in the context of monetary policy refers to the activity of the RBI of taking away the excess money supply created due to its foreign exchange market intervention. Withdrawing this excess money supply is necessary to stop inflation. This process of excess money supply withdrawal is called sterilisation.

What is sterilization intervention?

Sterilized intervention is the purchase or sale of foreign currency by a central bank to influence the exchange value of the domestic currency, without changing the monetary base.

What is non sterilized intervention?

Nonsterilized intervention. Taking an action in the foreign exchange market without adjusting for changes in money supply.

What is Sterilised intervention?

What is sterilization in economics Upsc?

Sterilization. It refers to the process by which the RBI takes away money from the banking system to neutralize the fresh money that enters the system.

Why is sterilization required?

Sterilization is the process that kills all forms of bacteria, disease, fungi, and viruses. Disinfection procedures before and after a medical event prevent the transmission of germs. Not only will it protect the patients, but also the medical professional.

What is sterilized intervention?

What is sterilization surgery?

Sterilization (sometimes called female sterilization, tubal ligation, or “getting your tubes tied”) is a safe and effective surgical procedure that permanently prevents pregnancy.

What is a ‘sterilized intervention’?

What is a ‘Sterilized Intervention’. A sterilized intervention is the purchase or sale of foreign currency by a central bank to influence the exchange value of the domestic currency, without changing the monetary base.

What is the meaning of RBI in sterilization?

Central bank , i.e RBI in Sterilization is a tool used by the central bank of a country to control the inflows/outflows of currency. This is done to temporarily increase demand for a currency that is depreciating rapidly.

How can the Central Bank sterilize its foreign exchange intervention?

To make up for the effect on the money supply, the central bank may choose to sterilize its foreign exchange intervention. This can be done by engaging in open market operations that inject liquidity into the system, by purchasing local-currency-denominated bonds and other domestic financial assets using local currency as payment.

Do sterilized monetary interventions reduce interest rates?

As sterilized interventions do not reduce an already high money supply, domestic interest rates will still be low. Participants continue borrowing at home and lending abroad and the central bank has to intervene again if it wants to prevent any future depreciation of its domestic currency.