Open Market Operations (OMOs)

Central banks conduct Open Market Operations as a core component of monetary policy. OMOs in essence involve the sale and purchase of government and other securities at short maturities in the open market to alter liquidity and pricing conditions. OMOs can be used to deal with issues of a transitory nature as well as achieving longer-term goals (such as altering the quantum of currency in circulation or altering long-term interest rates). The US Federal Reserve uses OMOs to adjust banks’ reserve balances in order to keep the Fed Funds rate around target. The European Central Bank conducts regular OMOs – one-week liquidity injections through its Main Refinancing Operations (MROs) to adjust short-term interest rates, manage liquidity and signal its monetary policy stance, and three-month operations through its longer-term refinancing operations (LTROs) to provide additional longer-term refinancing to the financial sector. Through the global financial crisis and ever since, central banks have conducted a series of non-standard OMOs, generally referred to as Quantitative Easing.