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News: The Reserve Bank of India (RBI) is likely to use Open Market Operations (OMO) to maintain liquidity within a manageable range.
1. The Open Market Operations (OMO) are used by Reserve Bank of India to buy or sell the Government Securities (G-Secs) in the open market to influence the money supply.
2. They are quantitative monetary policy tools that aim to influence interest rates, manage liquidity in the banking system and control inflation.
3. If there is excess liquidity in the market, the RBI sells the securities. The aim is to control inflation, and this signifies a tight monetary policy stance.
4. If the liquidity condition is tight, then RBI buys the securities to reduce the liquidity stress in the market. The aim is to support economic growth, and this signifies an accommodative monetary policy stance.
5. There are two types of OMOs: A) Outright Purchase B) Repurchase Agreement.
