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The Government Securities (G-Secs) prices rose on Wednesday as the Reserve Bank of India (RBI) decided to increase the quantum of the G-Secs it will purchase at the second auction, under the G-Sec Acquisition Programme (G-SAP 1.0), to ₹35,000 crore as against ₹25,000 crore, it purchased during the first auction.
“The second auction of the G-Secs for an aggregate amount of ₹35,000 crore under G-SAP 1.0 will be conducted on May 20, 2021,” RBI Governor Shaktikanta Das said.
The price of the benchmark 2030 G-Sec (carrying a coupon rate of 5.85 per cent) rose 26 paise to close at ₹99.07 (previous close: ₹98.81), with its yield declining below 6 per cent to close at 5.98 per cent (6.01 per cent). The bond prices and yields are inversely related and move in opposite directions. The first purchase of the G-Secs for an aggregate amount of ₹25,000 crore under the G-SAP 1.0 was conducted on April 15, 2021.
Enthusiastic response
The Governor emphasised that the first auction under G-SAP 1.0 elicited an enthusiastic response as reflected in the bid-cover ratio of 4.1.
The Governor also observed that with the system liquidity assured, the RBI is now focusing on increasingly channelising its liquidity operations to support growth impulses, especially at the grassroot level.
Under G-SAP 1.0, the RBI has committed upfront to a specific amount (₹1-lakh crore in the first quarter of FY22) of open market purchases of the government securities to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
“The endeavour will be to ensure congenial financial conditions for the recovery to gain traction,” Das said last month. For Q1 of 2021-22, therefore, RBI decided to announce a G-SAP of ₹1-lakh crore.
“We think the RBI’s normalisation cycle is likely to be on hold, unless the outlook for growth improves,” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) , and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore, in a report.
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