BANKING AFFAIRS

Detailed explanation-1: -Open market operations or OMOs are conducted by the Reserve Bank of India (RBI) by way of sale and purchase of G-Secs (government securities) to and from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.

Detailed explanation-2: -Open Market Operations is the simultaneous sale and purchase of government securities and treasury bills by RBI. The objective of OMO is to regulate the money supply in the economy. RBI carries out the OMO through commercial banks and does not directly deal with the public.

Detailed explanation-3: -Thus, it can be said that open market operations have an impact on the deposits and reserves of the bank and also plays a role in their ability to provide credit. When a central bank wants to reduce the availability of money to the public, it will sell government bonds and securities with the help of commercial banks.

Detailed explanation-4: -Open market operations (OMOs)–the purchase and sale of securities in the open market by a central bank–are a key tool used by the Federal Reserve in the implementation of monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC).

Detailed explanation-5: -What is Liquidity Adjustment Facility (LAF)? A LAF is a monetary policy tool used in India by the RBI through which it injects or absorbs liquidity into or from the banking system. It was introduced as a part of the outcome of the Narasimham Committee on Banking Sector Reforms of 1998.