Open Market Operations (OMO)

Open Market Operations (OMO)

1. It refers to the purchase and sale of securities (treasury bills and government securities) in open market by the central bank of any country.
2. This is done to regulate money supply in the economy.
3. OMO is one of the most important ways of monetary control that is exercised by the central banks. 
4. The central bank sells securities in the market when it wants to reduce the money supply in the market, with an intention to increase interest rates. This policy is also known as the contractionary monetary policy.
5. The central bank purchase securities from the market when it wants to increase the money supply in the market. This step is taken to reduce the rate of interest and also to help in the economic growth of the country. This policy is known as the expansionary monetary policy.
6. There is no involvement of the public in OMO and are carried out by the central bank in association with the commercial banks.