Open Market Operations (OMO)

The Reserve Bank of India (RBI) conducts Open Market Operations (OMO) as a primary tool of monetary policy to manage liquidity in the economy.
OMOs are often in the news in the context of inflation control, liquidity management, or government borrowing.

What are Open Market Operations (OMO)?

OMOs refer to the buying and selling of government securities by the central bank in the open market.
Objective: To regulate money supply and maintain interest rate stability.

Types of OMO:

1Outright Operations

RBI buys or sells government bonds for long-term liquidity adjustment.

Permanent impact on money supply.

2Repurchase Agreements (Repo/Reverse Repo Operations)

Short-term liquidity management through collateralised lending.

Reversible effect on money supply.

Objectives of OMOs

1Liquidity Management

Inject liquidity by buying government securities.

Absorb excess liquidity by selling securities.

2Inflation Control

Selling securities reduces money supply, helping to control inflation.

3Interest Rate Stabilisation

Maintains equilibrium in the short-term money market.

4Support Government Borrowings

Ensures smooth government debt management by facilitating demand for bonds.

Significance

OMOs are a key instrument under monetary policy as per RBI’s Liquidity Adjustment Facility (LAF) framework.
Help in maintaining financial stability and smoothing volatility in interest rates.
Enable RBI to signal its stance on inflation and growth.

Open Market Operations (omo)