The Reserve Bank of India (RBI) on Friday said it will initiate a secondary market government securities acquisition programme or G-SAP 2.0 worth Rs 1.20 lakh crore in the second quarter of this fiscal to enable an orderly evolution of the yield curve.
RBI has ensured adequate system liquidity is provided, thus borrowing costs and spreads have been reduced to historic lows.
Under G-SAP 1.0, the central bank will purchase G-sec of Rs 40,000 crore on June 17, which includes Rs 10,000 crore of State Development Loans (SDLs).
"In my statement of April 7, 2021, I had indicated that in addition to G-SAP, the Reserve Bank will continue to deploy regular operations under the LAF (Liquidity Adjustment Facility), longer-term repo/reverse repo auctions, forex operations, and open market operations, including special OMOs (Open Market Operations), to ensure that liquidity conditions evolve in consonance with the stance of monetary policy and financial conditions remain supportive for all stakeholders," RBI Governor Shaktikanta Das said on Friday.
So far this fiscal, Das said RBI has undertaken regular OMOs and injected additional liquidity to the tune of Rs 36,545 crore (up to May 31) in addition to Rs 60,000 crore under G-SAP 1.0.
MPC expectedly stayed on hold and emphasised its commitment to keeping policy accommodative and maintaining ample liquidity as long as necessary, said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
"A purchase and sale auction under operation twist has also been conducted on May 6, 2021, to facilitate the smooth evolution of the yield curve. Going forward, the Reserve Bank will continue to conduct regular operations for liquidity management," Das said.
To support growth that has been hit by the coronavirus pandemic, the government has planned a large borrowing of Rs 12.05 lakh crore in the financial year ending March 31, 2022. As a result, the fiscal deficit is expected to be 6.8 per cent of GDP, down from 9.3 per cent in the last fiscal.
“Of the residual Rs 40,000 crore GSAP 1.0, around Rs10,000 crore will be allocated to SDLs, while the G-SAP 2.0 amount will be higher at Rs 1.2 lakh crore for 2QFY21. This would further ensure lower sovereign risk premia ahead amid elevated borrowing calendar this year,” said Arora.
Das also said RBI has been taking several measures to encourage investments by Foreign Portfolio Investors (FPIs) in the Indian debt market such as the introduction of new channels for investment and periodic review of the operational framework in place for investments by non-residents.
“With an eye on liquidity mismatches among various sections, there was a mention of RBI focus shifting towards equitable liquidity distribution in coming months. There are ample signals that rates will stay lower till growth revival is broad-based and sustainable. We thus expect monetary policy to stay accommodative for the whole fiscal year and any normalisation signals to come forward only in the next year,” said Rajni Thakur, Economist, RBL Bank.
