Why in news
- Reserve Bank of India planned Open Market Operation (OMO) bond sales to absorb around Rs 1 trillion in persistent banking surplus liquidity.
Key terms
Open Market Operations (OMO)
Sale or purchase of government securities by a central bank to control money supply.
Forex Swap
An agreement where the central bank buys or sells foreign currency against local currency with a promise to reverse the transaction at a future date.
What are Open Market Operations?
- Quantitative monetary policy tool used by the RBI to regulate liquidity by buying or selling government securities (G-Secs) in the open market.
- Selling G-Secs absorbs excess liquidity from banks, while purchasing G-Secs injects liquidity into the financial system.
Drivers of current liquidity surplus
- Surplus banking liquidity surged primarily due to the unwinding of RBI's foreign exchange swap operations.
- OMO bond sales realign the Weighted Average Call Rate (WACR) with the repo rate by pulling cash out of the banking system.
Prelims facts
- OMO bond sales reduce bank liquidity and tighten short-term interest rates.
Mains discussion
- Interplay between foreign exchange intervention and domestic monetary liquidity management.
Source: Business Standard
Same topic · past papers
UPSC has asked this before
These previous-year questions sit on the same topic. Open one to practise the earlier ask.
-
2022 · Q101 · UPPGS
Medical students of India were brought to India from Ukraine by Indian Government under which of the following operations? -
2024 · Q145 · UPPGS
With reference to the “National Intellectual Property Rights Policy” consider the following statements: 1. It reiterates India's commitment to Doha Development Agenda and the TRIPS agreement. 2. Department of Industrial Policy and Promotion is the nodal agency for regulating Intellectual Property Rights in India. Which of the above statements is/are correct? Select the correct answer from the code given below: -
2022 · Q76 · UPPGS
Given below are two statements, one is labelled as Assertion (A) : and the other as Reason (R). Assertion (A): A solution of table salt in a glass of water is homegeneous. Reason (R): A solution having different composition throughout is homogengeous. Select the correct answer from the code given below: -
2018 · Q79 · UPPGS
The Supreme Court's judgment regarding homosexuality is related to which of the following?