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Open market operations (OMO)

Topic covered:

  1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

 

Open market operations (OMO)

 

What to study?

For prelims and mains: OMOs- meaning, need, significance and concerns.

 

Context: The Reserve Bank of India is planning to inject Rs. 15,000 crore into the financial system next month through purchase of government bonds via the auction route.

The government securities will be bought under open market operations (OMO). The decision has been taken in view of the evolving liquidity situation.

 

What is OMO?

Open market operations is the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.

The objective of OMO is to regulate the money supply in the economy.

RBI carries out the OMO through commercial banks and does not directly deal with the public.

Features: When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.

 

Sources: the Hindu.