In: Economics
Provide details about a central bank’s open market operations. Why are open market operations more advantageous than other tools of monetary policy
Open market operations (OMO)
OMOs are better than other tools of monetary policy as they are easier to implement due to being under direct control of the central bank. They are therefore flexible and inexpensive to implement on ground as opposed to other monetary policies which might turn out to be expensive in execution. Moreover they infuse money supply directly into the economy.
The central bank can assess the impact of OMO operations much more easily. Lastly, the OMOs do not affect the other financial institutions in the economy adversely. For example, by changing the reserve ratio, the financial institutions like banks get affected directly.