What’s in the news?

• The RBI recently announced that it considers the Open Market Operation (OMO) sale of government securities to manage liquidity in the system.

What’s OMO?

• The RBI uses Open market operations in order to adjust the rupee liquidity conditions in the market on a durable basis. 
• When the Reserve Bank feels that there is excess liquidity in the market, it resorts to the sale of government securities, thereby sucking out the rupee liquidity. 
• Similarly, when the liquidity conditions are tight, the central bank buys securities from the market, thereby releasing liquidity into the market. It’s used as a tool to rein in inflation and money supply in the system. 
• However, when liquidity is sucked out, it can lead to a spike in bond yields as the RBI will release more government securities into the market and bond buyers demand more interest rate on these securities.

https://indianexpress.com/article/explained/explained-economics/rbi-open-market-operation-8972699/