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Government Securities Acquisition Progra

  May 10, 2021

Government Securities Acquisition Programme (G-SAP)

Q Why is it in News ? 

The RBI, for the year 2021-22, has decided to put in place a secondary market Government Security (G-sec) Acquisition Programme or G-SAP 1.0. 

Q What is Government Securities Acquisition Programme (G-SAP)? 

  • It is part of RBIs Open Market Operations.
  • Under the programme, the RBI will commit upfront to a specific amount of Open Market Purchases of government securities.
  • The first purchase of government securities for an aggregate amount of Rs. 25,000 crore under G-SAP 1.0 will be conducted on 15th April, 2021.

Q What is its objective?

  • To avoid volatility in the G-sec market in view of its central role in the pricing of other financial market instruments across the term structure and issuers, both in the public and private sectors. 

Q What is significance  of this programme?

  • It will provide certainty to the bond market participants with regard to RBI’s commitment of support to the bond market in FY22.
  • The announcement of this structured programme will help reduce the difference between the repo rate and the 10-year government bond yield. That, in turn, will help to reduce the aggregate cost of borrowing for the Centre and states in FY 2021-22.
  • It will enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
  • A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.
  • The slope of the yield curve gives an idea of future interest rate changes and economic activity.

Q What is Open market operations?

  • Open Market Operations:
    • These are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
    • If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
    • Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
    • It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.