Open Market Operations (OMOs) serve as a crucial instrument in the Reserve Bank of India’s (RBI) toolkit to manage rupee liquidity conditions within the financial system.


  • RBI’s Liquidity Adjustment Mechanism: OMOs are employed by the RBI to make durable adjustments to rupee liquidity in the market.
  • Managing Excess Liquidity: In situations of excess liquidity, the RBI initiates the sale of government securities, effectively withdrawing rupee liquidity from the market.
  • Addressing Tight Liquidity Conditions: Conversely, during periods of tight liquidity, the central bank engages in purchasing securities, infusing liquidity into the market.
  • Control on Inflation and Money Supply: OMOs play a pivotal role in controlling inflation and managing money supply. However, the reduction of liquidity may lead to an increase in bond yields.
  • RBI’s Approach and Intent: The RBI’s post-policy press conference highlighted a commitment to “active liquidity management,” driven by concerns over inflation risks and financial stability.
  • Proactive Inflation Management: Amnish Aggarwal, head of research at Prabhudas Lilladher Pvt Ltd., emphasizes the need for a proactive approach beyond merely keeping inflation below the upper target range.
  • Seasonal Cash Withdrawals: Historical patterns reveal heightened cash withdrawals during the October-May period due to festive and wedding seasons.


The RBI’s Governor hints at potential OMO sales auctions of government securities to absorb excess liquidity, with recent OMO sales amounting to Rs 6,200 crore in September.

Anticipations of an OMO contribute to a 12 basis points increase in the yield on the 10-year government bonds, reaching 7.34%, underscoring the market’s expectation of tightened liquidity.

Legacy Editor Changed status to publish December 5, 2023