Current Affairs
Daily Bits

Open market operations (OMO)

  • Posted By
  • Categories
  • Published
    19th Oct, 2020

  • The Reserve Bank of India (RBI) has said it would conduct Open Market Operation (OMO) purchase of State Developments Loans (SDLs).
  • RBI will purchase the SDLs through a multi-security auction using the multiple price method.
  • There is no security-wise notified amount.
  • 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.
  • It is one of the quantitative monetary policy tools.
  • RBI carries out the OMO through commercial banks and does not directly deal with the public.
  • When the central bank wants to infuse liquidity into the monetary system, it will buy government securities in the open market. This way it provides commercial banks with liquidity.
  • In contrast, when it sells securities, it curbs liquidity.
  • Thus, the central bank indirectly controls the money supply and influences short-term interest rates.
  • RBI employs two kinds of OMOs:
    1. Outright Purchase (PEMO)this is permanent and involves the outright selling or buying of government securities.
    2. Repurchase Agreement (REPO) – These are short-term and are subject to repurchase.

Verifying, please be patient.