Context: Recently, Reserve Bank of India (RBI) has decided to infuse ₹10,000 crore liquidity in the banking system by buying government securities through open market operations (OMO).

What are OMOs?

  • When the central bank buys and sells securities from other banks it is called as Open Market Operations. It serves as major tool to raise or 
  • Sells securities: When the bank wants interest rates to rise it sells securities.This is known as a contractionary monetary policy. 
  • It adds credit to the bank's reserves.
  • Buys securities:  And when the bank wants to lower interest rates it buys securities. Its purchase of securities is an example of an expansionary monetary policy.

Need of OMO in current scenario:

  • To ensure that all market segments remain liquid and stable, and function normally.
  • Due to heightened volatility in the financial markets due to the spread of the COVID-19.

Source: https://www.thehindu.com/business/rbi-to-infuse-10000-crore-via-omo/article31101875.ece