BharatNotes What is Open Market Operations?
Open Market Operations (OMOs) are the outright purchase or sale of government securities (dated G-secs and treasury bills) by the Reserve Bank of India (RBI) in the open market. The RBI describes OMO as a major liquidity-management instrument of central banks in a modern, market-based monetary policy framework.
- OMO purchase — the RBI buys securities from banks, paying rupees and thereby injecting durable liquidity into the system.
- OMO sale — the RBI sells securities to banks, absorbing rupees and withdrawing liquidity.
OMOs are a quantitative tool of monetary policy and primarily address durable (long-term) liquidity needs, as opposed to the temporary adjustments handled by the repo and reverse repo under the Liquidity Adjustment Facility (LAF).
How OMO Differs From Related Instruments
| Instrument | Nature | Liquidity effect | Key feature |
|---|---|---|---|
| OMO | Outright buy/sell of G-secs | Durable injection or absorption | Permanent change in liquidity |
| LAF (repo/reverse repo) | Collateralised, reversible | Temporary | Short-term fine-tuning |
| Market Stabilisation Scheme (MSS) | Issue of special T-bills/dated securities | Absorbs liquidity | Proceeds parked in a separate RBI account, not used for spending |
| Forex swaps | USD/INR buy-sell | Injection or absorption | Used in tandem with OMO |
The MSS was introduced in April 2004 under an MoU between the Government of India and the RBI, on the recommendations of the RBI Working Group on Instruments of Sterilisation (Dec 2003), to sterilise the rupee liquidity created by large forex purchases.
Significance
OMOs sit within the flexible inflation targeting (FIT) framework — the Monetary Policy Framework Agreement of February 2015, given statutory backing by the Finance Act, 2016, which amended the RBI Act, 1934, set up the Monetary Policy Committee (MPC) and fixed CPI inflation at 4% (+/- 2%) as the target. By managing durable liquidity, OMOs support the smooth transmission of the policy repo rate and stabilise short-term money-market rates.
Current Status (2025-26)
OMO purchases returned strongly in 2025 to address a durable liquidity deficit. The RBI announced ₹2 trillion of OMO purchases in four tranches of ₹50,000 crore each on 29 December 2025, 5 January, 12 January and 22 January 2026, alongside a three-year USD/INR buy-sell swap of US$10 billion (settling 13 January 2026) — a combined liquidity injection of close to ₹3 trillion (RBI announcement, Dec 2025). Press reports note the RBI injected about ₹9.5 trillion of durable liquidity in the first half of the calendar year, of which roughly ₹5.2 trillion came through open-market purchases (Business Standard, Dec 2025). Aspirants should re-verify the latest figures on rbi.org.in before the exam, as liquidity operations are revised frequently.
UPSC Angle
For Prelims, master the contrast between OMO (outright, durable) and LAF repo/reverse repo (temporary), and remember that MSS proceeds are kept separate and do not finance government spending. For Mains GS3, OMOs are useful in answers on liquidity management, monetary transmission and the inflation-growth balance.
