Rapid Fire
RBI's OMO Purchases
- 09 Mar 2026
- 3 min read
The Reserve Bank of India (RBI) has announced Open Market Operation (OMO) purchases worth Rs 1 lakh crore in two tranches to infuse liquidity into the banking system.
- The OMO purchases of Rs 50,000 crore each are scheduled just ahead of advance tax outflows, which typically see approximately Rs 2 lakh crore exiting the banking system in mid-March. This strategic timing aims to neutralize the liquidity crunch.
Open Market Operation (OMO)
- About: OMO is a quantitative instruments of monetary policy that involves the buying and selling of government securities (G-Secs), including dated securities and treasury bills.
- Purchase of securities injects liquidity into the banking system (expansionary effect), while sale of securities absorbs liquidity (contractionary effect), thereby influencing the money supply.
- Execution in India: RBI conducts OMOs through auctions or direct market operations involving primary dealers, commercial banks, and other eligible participants via the electronic platform, the E-Kuber system.
- Objectives: The primary objectives are to adjust liquidity for durable banking system conditions and stabilize short-term rates to support monetary policy transmission.
- Additionally, operations aim to manage inflation by absorbing excess liquidity or support growth by infusing liquidity during deficits.
- Types of OMOs:
- Outright OMOs: It is a permanent purchase or sale of securities leading to lasting changes in liquidity (e.g., the recent Rs 1 lakh crore purchase announcement).
- Temporary Operations: Short-term liquidity adjustments conducted through the Liquidity Adjustment Facility (LAF), including repo and reverse repo operations.
- Significance: They complement other quantitative instruments like the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), allowing the RBI to fine-tune liquidity in response to seasonal factors (like advance tax outflows), external shocks, or capital inflows without directly altering policy rates.
| Read More: Quantitative Instruments of Monetary Policy |
