OMO Purchases and Dollar–Rupee Swap:
The Reserve Bank of India (RBI) has announced a dual intervention comprising Open Market Operation (OMO) purchases of government securities and a Dollar-Rupee buy/sell swap auction.
Open Market Operations :
- It refer to the buying and selling of government securities by the Reserve Bank of India (RBI) in the open market to regulate liquidity and money supply in the economy.
Types:
- OMO Purchase: RBI buys G‑secs → injects rupee liquidity (expansionary).
- OMO Sale: RBI sells G‑secs → absorbs rupee liquidity (contractionary).
A Rupee–Dollar swap:
- It is a foreign exchange tool used by the RBI in which it exchanges US dollars for rupees with banks, with an agreement to reverse the transaction at a future date.
Structure:
- Buy/sell swap: RBI buys dollars now (gives rupees) and agrees to sell the same dollars later → injects rupee liquidity now, withdraws it at maturity.
- Sell/buy swap: RBI sells dollars now (absorbs rupees) and buys them back later → sucks out rupee liquidity now, re‑injects later.
The RBI uses both tools simultaneously because they serve different but complementary purposes in managing liquidity, interest rates, and exchange rate stability.
- OMO helps RBI fine-tune liquidity permanently, while rupee–dollar swaps provide durable but reversible liquidity for longer periods.
- Using swaps allows RBI to inject rupee liquidity without directly altering domestic bond yields, while OMO directly influences the government securities market.
- Rupee–dollar swaps help stabilise the exchange rate and optimise forex reserves, while OMO focuses purely on domestic monetary conditions.
- Together, they give RBI greater operational flexibility to control liquidity surplus/deficit without overusing a single instrument.
