In News:

The Reserve Bank of India (RBI) has announced a liquidity injection of ?1.9 lakh crore into the banking system through Open Market Operations (OMOs) and USD/INR forex swaps, in response to tightening liquidity conditions observed since December 2024.

What are Open Market Operations (OMOs)?

• Open Market Operations refer to the buying and selling of government securities in the open market by the central bank to regulate liquidity in the banking system.
• It is a monetary policy tool used to manage inflation and ensure financial stability.

How OMOs Work:

• To inject liquidity: RBI purchases government securities from banks, increasing their cash reserves, which lowers interest rates, encourages lending, and boosts economic activity.
• To absorb liquidity: RBI sells government securities, reducing cash reserves in the system, which raises interest rates, discourages excessive lending, and cools inflation.

RBI’s Recent Measures (March 2025):

• OMO Purchase Auctions:Government securities worth ?1 lakh crore to be bought in two tranches of ?50,000 crore each on March 12 and March 18.
• Forex Swap Auction:
  • A USD/INR Buy/Sell Swap worth $10 billion with a 36-month tenor, scheduled for March 24, to inject long-term dollar liquidity.
  • A similar $10 billion swap was conducted on February 28, which saw strong demand.