Context: The Reserve Bank of India (RBI) has announced an open market operation (OMO) purchase to purchase government securities worth ₹80,000 crore in April 2025. This comes after major expectations of further liquidity operations by the Reserve Bank of India.
Relevance of the Topic: Prelims: Key facts about OMOs; G-Secs; Liquidity Management measures by RBI.
Major Highlights
- RBI will conduct fresh purchase of government securities under OMOs for an aggregate amount of ₹80,000 crore. This will be carried out in four tranches of ₹20,000 crore each.
- The move is in continuation of the RBI's recent measures to inject liquidity into the financial system.
- Earlier in March 2025, RBI conducted OMO purchases of government securities worth Rs 1 lakh crore in two tranches of Rs 50,000 crore each.
- RBI also held a dollar-rupee buy/sell swap auction of $10 billion for 36 months.
Open Market Operations (OMO)
- OMOs are a key monetary policy tool used by the RBI to regulate liquidity in the banking system by buying or selling government securities (G-Secs) in the open market.
- When RBI purchases government securities, it injects liquidity into the system. This encourages banks to lend more which can boost economic activity.
- When RBI sells government securities, it absorbs excess liquidity and helps to control inflation by reducing the money supply.
- OMOs are crucial for maintaining stable interest rates, ensuring adequate credit availability, and managing overall financial stability in the economy.
Government Securities (G-Secs)
- G-Sec is a tradable debt instrument issued by Central government or State governments. It acknowledges the government's debt obligation.
- Types of G-secs:
- Short-Term Government Securities (maturity <1 year): Treasury Bills, Cash Management Bills.
- Long-Term Government Securities (Maturity >1 year): Dated G-Secs.
- G-Secs are issued through auctions conducted by Reserve Bank of India, through the electronic platform E-Kuber.
Also Read: RBI’s Liquidity Moves and Forex Market Intervention
The RBI’s liquidity support is crucial as it comes at a time when economic recovery in India is showing mixed signals, with inflationary pressures, slowing industrial output, and the global economic slowdown affecting business sentiments.