The RBI has introduced a new program called Government Securities Acquisition Programme (G-SAP) through which it will buy government securities worth Rs 1 lakh crore in the first quarter of FY22.
To bring economy back on track and remove fears regarding the rising bond yields, the RBI decided to make the move.
G-SAP will run alongside RBI’s regular operations including Liquidity Adjustment Facility (LAF), open market operations (OMOs) and Operation Twist.
- The G-SAP will provide better option for bond market even as borrowing by the government is expected to increase.
- The move has been dubbed as similar to Operation twist where liquidity was withdrawn at the short end and injected at the long end.
Benefits of G-SAP
- The G-SAP is expected to provide certainty to the bond market participants regarding the RBI’s commitment to support the bond market.
- The programme will help in reducing the spread between the repo rate and the 10-year government bond yield. This will reduce cost of borrowing for centre and states.
- The decline in bond yield is positive news for the equities market. It will manage liquidity and control bond price volatility.