Open Market Operations to absorb liquidity

This post focuses on open market operations, which have been the main instrument of sterilization for RBI.

RBI conducts OMO for absorbing excess liquidity in system through sale of securities. As RBI has a limited stock of government securities, OMO operations cannot continue for longer periods.

Mismatch could also be created by using long term securities to absorb short term flows. OMO sales involve permanent absorption of liquidity.

An example of how an OMO sale is announced can be seen in the following press release:

RBI Announces OMO Purchase of Government of India Dated Securities