Money & Banking

Released liquidity may help banks to subscribe to G-Secs

Our Bureau Mumbai | Updated on May 20, 2021

Market participants offered to sell seven G-Secs aggregating ₹1,21,696 crore

Liquidity released on account of purchase of Government Securities (G-Secs/GS) aggregating ₹35,000 crore by the Reserve Bank of India (RBI) on Thursday may encourage banks to subscribe to G-Secs aggregating ₹32,000 crore at Friday’s scheduled auction.

Market participants offered to sell seven G-Secs aggregating ₹1,21,696 crore against the notified amount of ₹35,000 crore RBI wanted to buy under the second tranche of its G-sec Acquisition Programme (G-SAP 1.0).

RBI accepted offers for six G-Secs aggregating the notified amount. It rejected all the offers for 7.95 per cent GS 2032.

The Central bank purchased the benchmark 5.85 per cent GS2030 under G-SAP at ₹99.26 (yield: 5.9526 per cent) against the previous close of ₹99.10 (5.9749 per cent). Bond prices and yields are inversely related and move in opposite directions.

Stable and orderly evolution

Under G-SAP, the RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Meanwhile, the central bank decided to conduct a 14-day Variable Rate Reverse Repo auction for a notified amount of ₹2-lakh crore under its Liquidity Adjustment Facility on May 21.

The aforementioned auction is conducted by RBI to suck out excess liquidity from the banking system.

Published on May 20, 2021

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