The slides are all about open market operations led by RBI

1. M S S V A I S H N A V I
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OPEN MARKET OPERATIONS

2. CONTENTS
 Introduction
 Aim of OMO
 How does OMO happen?
 OMO process
 When does OMO happen?
 Where does OMO take place?
 Outcome of OMO

3. INTRODUCTION
 Open Market Operations are generally conducted by Reserve Bank of
India(RBI).
 OMO is an activity by a central bank to give or take liquidity in its
currency to or from a bank or group of banks.
 The central bank can either buy or sell government bonds in the
open market.
 Central bank gives money as a deposit for a defined period and
synchronously takes an eligible asset as collateral.
 Central bank uses OMO as the primary means of implementing
monetary policy.

4. AIM OF OMO
 The usual aim of OMO is aside from supplying commercial banks with
liquidity and sometimes taking surplus liquidity from commercial
banks to manipulate the short term interest rate and the supply of base
money in an economy, and thus indirectly control the total money
supply, in effect expanding money or contracting the money supply.
 To adjust the rupee liquidity conditions.
 Key players in OMO :
1. Reserve Bank of India
2. Commercial banks
3. Financial institutions

5. HOW DOES OMO HAPPEN?
 OMO can happen in two ways.
1. Outright purchase(PEMO)-
Outright purchase or PEMO is an outright buying or selling of
government securities.
2. Repurchase agreement(REPO)-
A Repurchase agreement, also known as REPO, is a transaction
concluded on a deal date between two parties.
In a REPO the party B acts as a lender of cash, whereas the seller
A acting as a borrower of cash, using the security as collateral.

6. OMO PROCESS

7. OMO PROCESS
 The central bank maintains LORO accounts for a group of
commercial banks, the so-called direct payment banks.
 A balance on such a LORO account represents central bank money in
the regarded currency.
 Since the central bank money currently exists mainly in the form of
electronic records rather than in the form of paper or coins, OMO
can be conducted by simply increasing or decreasing the amount of
electronic money that a bank has in its reserve account at the central
bank.

8. WHEN DOES OMO HAPPEN?
 After the 1991 economic reforms use of CRR and SLR tools were
deemphasized and the use of OMO increased.
 When they want to control the money supply in the market.
 When there is excess or less of liquidity in the market.
 When RBI wants to maintain an inflation rate within a target range.
 When they want to target the specific short term interest rates.
 When they want to achieve a fixed exchange rates with relation to foreign
currencies.

9. WHERE DOES OMO TAKE PLACE?
 Open market operations takes place in two areas.
1. Through Online
2. Through GSO account-
GSO is one of the world's largest credit-oriented alternative
asset managers, with a focus on delivering attractive risk-adjusted returns
and capital preservation for our clients.

10. OUTCOME OF OMO
 Soften the interest rates.
 Fresh bonds can be issued at lower yields and government can buy at
reasonable rates.
 Enables corporate to buy at favourable rates.
 It prevents rupee from strengthening unnecessarily and thus protects
the exporter.
 It may tend to increase inflation.