RBI Conducts Open Market Operations to Increase Liquidity
- Context: The Reserve Bank of India (RBI) carried out Open Market Operations (OMO) by purchasing Government Securities (G-Secs) worth ₹50,000 crore to add liquidity to the banking system.
Open Market Operations (OMO)
- Open Market Operations are monetary policy instruments used by the RBI to control the amount of liquidity in the financial system.
- Through OMOs, the RBI buys or sells Government Securities in the open market.
Types of OMO
- OMO Purchase: When the RBI purchases government bonds from banks, money flows into the banking system, thereby increasing liquidity.
- OMO Sale: When the RBI sells government bonds to banks, money is taken out of circulation, helping to reduce excess liquidity in the market.
Government Securities
- Government Securities are tradable financial instruments issued by the Central or State Governments to borrow funds from the market.
Types of G-Secs
- Short-term securities: Known as Treasury Bills, which usually have a maturity period of less than one year.
- Long-term securities: Referred to as government bonds or dated securities, with maturity of one year or more.
Issuance in India
- The Central Government issues both Treasury Bills and long-term bonds.
- State Governments issue only long-term securities, commonly called State Development Loans (SDLs).
