Operation Twist (RBI)

Operation Twist is a special-format open market operation (OMO) conducted by the Reserve Bank of India under the legal authority of Section 17(8) of the Reserve Bank of India Act, 1934, which empowers the central bank to purchase and sell securities of the Central and State Governments. The Indian variant borrows its name and mechanics from the United States Federal Reserve's 1961 operation and its 2011–2012 revival, when the Federal Open Market Committee sought to compress long-term Treasury yields while keeping the size of its balance sheet constant. The RBI first deployed the technique on 20 December 2019, framing it as a tool to improve monetary policy transmission rather than to inject or drain durable liquidity. Unlike a conventional OMO, which is principally a liquidity-management instrument, Operation Twist targets the shape of the yield curve itself, addressing the persistent gap between the policy repo rate and longer-tenor borrowing costs.

The mechanics are deliberately balance-sheet neutral. In a single coordinated auction window, the RBI simultaneously announces the purchase of long-dated government securities — typically of ten-year residual maturity — and the sale of an equivalent rupee value of short-dated securities or treasury bills. Because the value of purchases matches the value of sales, the operation neither expands nor contracts net durable liquidity in the banking system. The intended effect is on relative prices: buying the long end pushes long-bond prices up and their yields down, while selling the short end pushes short-bond yields modestly up. The net result is a flatter yield curve, lowering the benchmark cost against which corporate bonds, home loans and infrastructure financing are priced.

Procedurally, the RBI publishes a press release specifying the securities eligible for purchase and the securities offered for sale, the aggregate amount (commonly ₹10,000 crore per leg in the 2019–2020 round), and the auction date. Participants submit competitive bids through the Negotiated Dealing System–Order Matching (NDS-OM) platform. The central bank applies a multiple-price or uniform-price auction methodology and reserves the discretion to accept less than the notified amount, to reject bids, or to vary the security mix if market conditions warrant. The operation can be repeated in tranches, and the RBI has at times conducted "special OMOs" of this twist format alongside its regular liquidity-oriented OMO calendar, signalling that the two serve distinct objectives.

Between December 2019 and the onset of the COVID-19 pandemic, the RBI under Governor Shaktikanta Das conducted a sequence of Operation Twist auctions. The inaugural 20 December 2019 operation purchased ₹10,000 crore of the 6.45% 2029 paper while selling short-tenor securities maturing in 2020. Further tranches followed in late December 2019, January 2020 and during 2020 as the central bank sought to keep the ten-year benchmark anchored amid heavy government borrowing. The Mumbai-headquartered central bank's monetary policy department coordinated these with the Reserve Bank's broader accommodative stance, complementing repo-rate cuts that had not fully passed through to long-term lending rates. The technique re-entered policy discussion whenever the term premium on the ten-year G-Sec widened relative to the repo rate.

Operation Twist must be distinguished from adjacent instruments. A standard open market operation alters the quantum of liquidity by net buying or net selling and shifts the entire yield curve in one direction; Operation Twist holds liquidity constant and reshapes the curve. It also differs from quantitative easing, in which a central bank expands its balance sheet through net asset purchases financed by reserve creation — something the RBI has avoided labelling its actions as. It is likewise distinct from the Marginal Standing Facility and the Liquidity Adjustment Facility, which operate at the very short end of overnight money markets. Finally, it differs from the Government Securities Acquisition Programme (G-SAP), announced in April 2021, which was an upfront committed calendar of outright purchases and therefore did expand liquidity.

Controversy surrounds the efficacy and the fiscal optics of the tool. Critics note that the yield-flattening effect is often transient, since heavy central- and state-government borrowing programmes continually push long yields back up, requiring repeated intervention. Some economists argue the operation blurs the line between monetary policy and debt management, given that the RBI is also the Government's debt manager — a dual role that raises questions of conflict where the central bank's purchases ease the sovereign's borrowing cost. There is also debate over signalling risk: large or frequent twists may be read by markets as implicit yield-curve control, anchoring expectations the RBI has not formally committed to. The RBI has consequently used the instrument selectively rather than as a standing facility.

For the working practitioner — the fixed-income desk officer, the fiscal-policy researcher or the UPSC GS-III candidate — Operation Twist is a precise illustration of how a central bank can pursue price-of-credit objectives independently of quantity-of-liquidity objectives. Understanding it requires distinguishing transmission (the pass-through of policy rates to actual lending rates) from liquidity provision, and recognising that the term premium is a separate lever from the policy rate. In examination and analytical contexts, the term recurs as the textbook example of yield-curve management in the Indian setting, sitting alongside OMOs, G-SAP and the LAF corridor in any complete account of how the Reserve Bank steers the cost of long-term money.