Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?

Answer: A. Open Market Operations (OMOs) are RBI's primary sterilization tool. Sterilization refers to a central bank's action to NEUTRALIZE the domestic monetary effect of foreign exchange interventions. When the RBI buys dollars (to prevent rupee appreciation), rupees flow into the banking system and money supply rises. To prevent this from fueling inflation, the RBI 'sterilizes' the rupee injection by: - Selling Government Securities in OMOs (this absorbs the excess rupees from banks). - Using the Market Stabilization Scheme (MSS) introduced in 2004 to issue special securities. - Using Liquidity Adjustment Facility (LAF) variable repos. Selling G-Secs via OMOs is the textbook sterilization operation. Distractors: (B) Settlement system oversight is a separate function (payment system regulator). (C) Debt and cash management for governments is a banker-to-government role. (D) NBFC regulation is supervisory, not monetary. Source: RBI Monetary Policy Department documents / Mishkin Money & Banking textbook.