Open Market Operation - OMO

*Open Market Operation - OMO* 

Open market operation is the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.

The objective of OMO is to regulate the money supply in the economy.

When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.

RBI carries out the OMO through commercial banks and does not directly deal with the public.

OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.