OPEN MARKET OPERATIONS (OMO)

                                         
  (monetary policy terms-5)

It refers to the mechanism through which RBI purchases and sells government securities in the form of bills and bonds to the banks as well as financial institutions. However it is over and above the government securities sold by the RBI to the banks in order to maintain their SLR. If the RBI follows a contractionist OMO, then more and more government securities will be sold and money will be taken away from the banking system. This will bring down the demand in the  economy. On the other hand if expansionist OMO is adopted then the RBI will repurchase more and more government securities from the banking system. It is adopted to enhance liquidity and ultimately economic growth. It is not mandatory for a bank to buy government securities through OMO. Only those banks which have surplus and are willing to buy government securities may buy it on this platform. Presently the government securities are issued in 
electronic form. They are bought and sold in electronic form over an electronic platform known as e - KUBER. Negotiated Dealing System-Order Matching system (NDS-OM) is another screen based electronic anonymous order matching system for secondary market trading in Government securities owned by RBI.

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