The Reserve Bank of India (RBI) has decided to increase the amount of government securities (G-Secs) it will purchase at the second auction under the G-Sec Acquisition Programme (G-SAP 1.0) to ₹35,000 crore against ₹25,000 crore it purchased at the first auction.
The second purchase of G-Secs for an aggregate amount of ₹35,000 crore under G-SAP 1.0 will be conducted on May 20, 2021, Governor Shaktikanta Das said.
This announcement had a immediate effect with the yield on the benchmark 2030 G-Sec thawing about 2 basis points to 5.99 per cent, with its price moving up about 15 paise to Rs 98.96.
The first purchase of G-Secs for an aggregate amount of ₹25,000 crore under G-SAP 1.0 was conducted on April 15, 2021.
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.
“G-SAP has engendered a softening bias in G-sec yields which has continued since then.
“Given this positive response from the market, it has been decided that the second purchase of government securities….” Das said.
The Governor observed that with 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 government securities with a view to enabling 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, it has been decided to announce a G-SAP of ₹1 lakh crore. The first purchase of government securities for an aggregate amount of ₹25,000 crore under G-SAP 1.0 will be conducted on April 15, 2021.
“RBI Governor Shaktikanta Das in an unscheduled speech today provided more liquidity support and a larger tranche of G-SAP 1.0. 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) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore, in a report.