RBI Infuses Rs 1 Lakh Cr via OMO

Amount: Rs 1 lakh crore OMO purchases in two tranches of Rs 50,000 crore each.
Timing: Scheduled just before the mid‑March advance‑tax outflows, which typically drain about Rs 2 lakh crore from the banking system.
Objective: Neutralise the seasonal liquidity crunch and support short‑term rate stability.

Open Market Operations (OMO): A quantitative instrument where the RBI buys or sells government securities (G‑Sec, dated securities, Treasury bills) to inject or absorb liquidity.
Execution Platform: Conducted through the electronic E‑Kuber system involving primary dealers, commercial banks and other eligible participants.
Types of OMO:
Outright OMO: Permanent purchase/sale leading to lasting liquidity change (e.g., the current Rs 1 lakh crore purchase).
Temporary OMO: Short‑term adjustments via the Liquidity Adjustment Facility (repo/reverse‑repo).

Liquidity Management: Helps the RBI fine‑tune liquidity without altering policy rates, crucial during seasonal cash‑flow mismatches like advance‑tax payments.
Monetary‑Policy Transmission: Stabilises short‑term market rates, ensuring the policy stance (rate cuts or hikes) permeates to the real economy.
Complementary Tools: Works alongside Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) to manage money supply.
Inflation Control: By absorbing excess liquidity, OMO can curb demand‑pull inflation; by injecting liquidity, it can support growth when demand is weak.

RBI Act, 1934 (Amended 2020): Empowers the RBI to conduct open market operations as part of its monetary‑policy functions.
Monetary Policy Committee (MPC): Decides the policy repo rate; OMO is used to ensure the rate’s effective transmission.

Advance Tax Outflows: Corporate and individual advance tax payments that lead to a large, predictable outflow of funds from banks in March.
Primary Dealers: Designated banks that trade directly with the RBI in government securities, facilitating OMO execution.
Liquidity Adjustment Facility (LAF): The day‑to‑day repo and reverse‑repo operations that complement outright OMO.

For deeper reading, see: [Quantitative Instruments of Monetary Policy]