An open market operation (OMO) that involves outright purchases or sales of securities (eligible securities) by a central bank for its own monetary policy purposes and as part of its own portfolio. In other words, such operations are conducted on a continuous basis, buying and selling securities as part of a clear-cut strategy, mainly to permanently fine-tune money supply in the economy, as and when needed (rather than on a temporary basis by means of temporary open market operations, TOMO).
Permanent open market operations (POMOs) are conducted to address the longer-term factors driving the trend growth of money supply in an economy, among others. These operations are also used to manage a central bank’s holdings of securities so that it can apply downward pressure on longer-term interest rates and to foster a more accommodative financial system.
By means of permanent open market operations, a central bank can also reinvest principal payments from its holdings of agency debt and mortgage-backed securities (MBS) in agency MBS and of rolling over maturing treasury securities further into the future.
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