Reserve Bank of India (RBI) announced G-SAP 2.0 worth Rs 1.2 lakh crore in the second quarter of FY 2022

RBI Monetary Policy 2021: Central bank keeps interest rates stable to maintain status quo

The Reserve Bank of India (RBI) in its bi-monthly Monetary Policy Committee (MPC) statement said that another round of the Rs 40,000 crore Government Securities Acquisition Program (G-SAP 1.0) will be held on June 17. Out of this, Rs 10,000 crore would constitute the purchase of State Development Loans or SDLs. RBI Governor Shaktikanta Das said the central bank does not expect the market to react appropriately to the announcement of G-SAP 2.0. (Read also: Highlights of RBI’s monetary policy: Lending rates unchanged, projected to rise by 9.5 per cent)

Specific dates and securities under G-SAP 2.0 operations will be announced separately. The Reserve Bank has planned a G-SAP of Rs 1 lakh crore for the first quarter of the current financial year.

In its first bi-monthly monetary policy committee for the financial year 2021-22 held in April, the Reserve Bank had announced the secondary market G-SAP 1.0 scheme. As part of the programme, the central bank committed in advance a specific amount of open market purchases of government securities to ensure a steady and orderly growth of the yield curve amid comfortable liquidity conditions.

”G-SAP 2.0 announced at Rs. 1.2 lakh crore will ensure adequate liquidity in the system. Indian Chamber of Commerce (ICC) Director General Dr. Rajeev Singh said, “The increase in inflation rate will lead to a marginal increase in bond yields in the short term.

Shaktikanta Das in his statement said that during the current year, RBI has so far carried out regular OMOs and injected additional liquidity of Rs 36,545 crore till May 31, which is in addition to Rs 60,000 crore under G-SAP. 1.0 Scheme.

The RBI governor said that a buy and sell auction was conducted on May 6 as part of Operation Twist to facilitate easy growth of the yield curve. Meanwhile, the redemption of government securities worth around Rs 52,000 crore in the last week of May completely neutralized the cash reserve ratio (CRR) restoration.

“As part of its objective of ensuring adequate liquidity, RBI has continued with its GSAP 1.0 program for Q1FY22 with scheduled GSC purchases of Rs 40,000 crore in June and importantly, it has been further expanded with GSAP 2.0 at Rs 1.2. lakh crore in Q2FY22,” said Mr. Suman Choudhary, Chief Analytical Officer, Acuite Ratings & Research.

Along with the use of other instruments like OMOs and Operation Twist, these announcements are a clear message to market participants that the RBI wants to provide necessary support and facilitate a slight downward bias on bond yields.

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