PDSnet Glossary

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Introductory Technical Fundamental Economics Opinion Sectors International Regulatory Other Markets

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Definition

The buying and selling of government securities (mainly bonds) in the open market by the Reserve Bank in order to control the money supply. Doing this allows for the amount of money in the banking system to expand and contract, ensuring stability and growth. Purchases of securities create growth by injecting money into the banking system. Essentially, this is an exchange of money for securities and increases the amount of money in the economy. Sales do the opposite and contract the economy. The aim is to influence interest rates and ensure that demand and supply within the economy do not become unstable.

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