Outright open market operations
Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 12, Ch 3 "Money and Banking"
Meaning
Outright open market operations are purchases or sales of government securities by the central bank with no promise to reverse them. A purchase adds money to the banking system permanently. A sale takes money out permanently. RBI uses them to manage durable liquidity, meaning lasting surpluses or shortages of funds, and not just day-to-day swings.
Example
When RBI buys government bonds from banks, it pays them in rupees and banks' reserves rise. Money supply rises through the money multiplier. When RBI sells bonds, banks pay RBI, so reserves and money supply fall. In both cases the deal is not undone later.
Don't confuse with
- Repo operations: RBI lends by buying securities with an agreement to sell them back at a set date and price, overnight or for up to 14 days. So the injection is temporary. An outright OMO is permanent.
Related concepts
- Monetary policy
- Expansionary monetary policy
- Contractionary monetary policy
- Quantitative tools of monetary policy
- Cash Reserve Ratio
- Net Demand and Time Liabilities
- Statutory Liquidity Ratio
- Bank rate
- Open market operations
- Repo rate