Reserve Bank of India (RBI) will conduct its first-ever Open Market Operation (OMO) purchase of State Developments Loans (SDLs) on October 22, 2020.
- The OMOs worth 10,000 crore rupees will be conducted as a special case during the current financial year with an aim to improve liquidity and facilitate efficient pricing.
- It is first-ever purchase auction of the state government securities worth Rs 10,000 crore.
What are Open market operations?
- Open market operations (OMO) is the sale and purchase of government securities and treasury bills by RBI.
- The objective behind OMO is to regulate the money supply in the economy.
- When the Reserve Bank of India wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
- OMO is carried out through commercial banks and does not directly deal with the public.
What are State Development Loans (SDLs) and G-Sec?
- A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments.
- It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
- In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).
- G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
(Source: AIR and ET)
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