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RBI to ease liquidity
Why is it in the news ?
- The Central bank announced to inject Rs 12,000 crore into the system through the purchase of government securities on November 15.
- It has decided to conduct the purchase of the government securities under Open Market Operations(OMO).
More in the news
- The OMO operation will help ease tight liquidity situation triggered by a series of default by group companies of IL&FS.
- The RBI had earlier stated that the system liquidity will move into deficit in the second half of 2018-19.
- Subsequently the evolving liquidity conditions would determine its choice of instruments for both transient and durable liquidity management.
- As part of the OMOs, the RBI will purchase government securities maturing in 2021.
- OMOs are the tools which can be used to either inject or drain liquidity from the system.
- It is employed to adjust rupee liquidity conditions in the market on a durable basis.
- If there is excess liquidity, the RBI resorts to sale of securities and sucks out the rupee liquidity.
- Similarly, when the liquidity conditions are tight, it buys securities from the market, thereby releasing money into the market.
Open Market Operations (OMO)
- Major monetary policy instrument of the RBI.
- It refers to the buying and selling of eligible securities or first class bills (govt. securities) by the RBI.
- Buying of securities in the open market increases the supply of credit.
- On the other hand selling of securities reduces the volume of money with the public.
Source
Indian Express.