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.
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The move has been dubbed as similar to Operation twist where liquidity was withdrawn at the short end and injected at the long end.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.