RBI Introduces G-SAP 2.0, Allocates Rs 1.2 Lakh Crore for Second Quarter of Current Fiscal Year
In its latest Monetary Policy for 2021, the Reserve Bank of India (RBI) has opted to maintain the status quo by keeping interest rates stable.
The RBI, through its bi-monthly Monetary Policy Committee (MPC) Statement, has announced another round of the Government Securities Acquisition Programme (G-SAP 1.0), amounting to Rs 40,000 crore, scheduled for June 17. Of this sum, Rs 10,000 crore is designated for the acquisition of state development loans (SDLs). RBI Governor Shaktikanta Das expressed that the central bank anticipates a measured response from the market to the unveiling of G-SAP 2.0. (For more details, see: RBI Monetary Policy Highlights: Unchanged Lending Rates, Growth Projections Stand at 9.5%)
Specific details regarding the dates and securities involved in the G-SAP 2.0 operations will be disclosed separately. The Reserve Bank had initially outlined a G-SAP worth Rs 1 lakh crore for the first quarter of the ongoing fiscal year.
During its initial bi-monthly monetary policy committee session for fiscal year 2021-22 held in April, the Reserve Bank had introduced the secondary market G-SAP 1.0 scheme. This initiative involved the commitment of a predefined amount of open market purchases of government securities, aimed at ensuring a stable and orderly evolution of the yield curve amidst favorable liquidity conditions.
Dr. Rajeev Singh, Director General of the Indian Chamber of Commerce (ICC), commented, “The announcement of G-SAP 2.0 amounting to Rs. 1.2 lakh crore will infuse adequate liquidity into the system. The marginal increase in bond yields in the short term can be attributed to the upward revision of the inflation rate.”
Governor Shaktikanta Das highlighted in his statement that thus far in the current year, the RBI has conducted regular Open Market Operations (OMOs) and injected additional liquidity amounting to Rs 36,545 crore up to May 31, in addition to the Rs 60,000 crore under the G-SAP 1.0 scheme.
Furthermore, a purchase and sale auction under the operation twist was executed on May 6 to facilitate a smooth evolution of the yield curve. Concurrently, the redemption of government securities worth approximately Rs 52,000 crore in the last week of May effectively neutralized the restoration of the cash reserve ratio (CRR).
Mr. Suman Chowdhury, Chief Analytical Officer at Acuité Ratings & Research, stated, “As part of its objective to maintain adequate liquidity, the RBI has continued its GSAP 1.0 program for Q1FY22, with a scheduled Gsec purchase of Rs 40,000 crore in June, and importantly, has advanced with GSAP 2.0, planning the acquisition of another Rs 1.2 lakh crore in Q2FY22.” He added, “These announcements, along with the utilization of other tools such as OMOs and Operation Twist, convey a clear message to market participants that the RBI is committed to providing necessary support and facilitating a slight downward bias on bond yields.”