OPEN MARKET OPERATIONS

OPEN MARKET OPERATIONS

Subject : Economics

Context : The Reserve Bank of India (RBI) has decided to conduct simultaneous purchase and sale of government securities under Open Market Operations (OMO) for an amount of ₹10,000 crore each on March 25.

Concept :

• Open Market Operations (OMOs) are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
• If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
• Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
• It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.

About G-secs

• A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the State Governments.
• It acknowledges the Government’s debt obligation.
• Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more.