Quick Definition

Open market operations (OMO) refer to the buying and selling of government securities in the open market by a central bank to control the money supply and influence interest rates.

Examples

• 1A central bank purchases government bonds to inject money into the banking system, aiming to lower interest rates and stimulate economic growth.
• 2A central bank sells government bonds to absorb excess liquidity from the banking system, which can help to curb inflation by raising interest rates.
• 3During a recession, a central bank might increase its open market purchases to lower borrowing costs and encourage investment and spending.
• 4In periods of economic overheating, a central bank may sell off its holdings in government securities to tighten the money supply and cool down inflationary pressures.

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