OMO Auction

Context

What an OMO Is

• A quantitative monetary policy tool — outright purchases or sales of G-Secs and Treasury Bills in the secondary market to regulate reserve money

Three Types

• Outright OMO Sale — RBI sells G-Secs from its portfolio, permanently absorbing durable liquidity
• Outright OMO Purchase — RBI buys G-Secs, injecting durable liquidity
• Simultaneous Sale and Purchase (Operation Twist) — selling short-term and buying long-term securities to flatten the yield curve without expanding the balance sheet

How It Works

• Notification and e-Kuber bidding — eligible primary dealers, scheduled commercial banks and institutions place electronic yield or price bids on the RBI’s e-Kuber platform
• Allocation — bids accepted up to notified cut-off yields, by multiple or uniform price auction
• Liquidity drain — banks transfer funds from their current accounts with the RBI, locking reserve cash into interest-earning G-Secs

Key Features

• Direct quantitative balance-sheet instrument — unlike SDF or MSF, which address short-term needs
• Discretionary flexibility — the RBI can set security-wise limits, reject mispriced bids and vary accepted amounts
• Phased execution — large operations split into tranches to avoid sudden bond-yield disruption