G-SAP: Second tranche of bond buying worth ₹35,000 crore today

With the bond-buying plan, the RBI plans to keep a lid on long-term interest rates amid a massive government borrowing programme. G-SAP will run alongside RBI's regular operations including Liquidity Adjustment Facility, open market operations and Operation Twist.

The second tranche of open market purchase of government securities worth ₹35,000 crore under the G-sec Acquisition Programme (G-SAP) will take place on Thursday. This follows the Reserve Bank of India's (RBI) announcement to this effect last week.

The first such auction of ₹25,000 crore was held on April 15. (Aniruddha Chowdhury/Mint File Photo))

According to the RBI, this is being done with a view to enabling a stable and orderly evolution of the yield curve.

After the Monetary Policy Committee (MPC) meeting last month, governor Shaktikanta Das had announced that the RBI will conduct open market purchases of government securities of ₹1 lakh crore under G-SAP in first quarter of the financial year 2021-22.

With the bond-buying plan, the RBI plans to keep a lid on long-term interest rates amid a massive government borrowing programme. At the MPC meeting, the bank held policy rates steady and retained an accommodative stance to underpin the fragile economic recovery in the wake of Covid-19 pandemic.

The first such auction of ₹25,000 crore was held on April 15. The RBI said that it elicited an enthusiastic response.

On Thursday (May 20), the central bank will purchase seven government securities of different maturities amounting to ₹35,000 crore. There will be no security-wise notified amount.

G-SAP will run alongside RBI's regular operations including Liquidity Adjustment Facility (LAF), open market operations (OMOs) and Operation Twist.

The programme has engendered a softening bias in G-sec yields which has continued since then. Das had said with system liquidity assured, the RBI is now focusing on increasingly channelising its liquidity operations to support growth impulses, especially at the grassroot level.

As part of G-SAP, the RBI will buy bonds from the secondary market in the three months to June 30. The central bank has been under pressure from bond traders - worried about a glut of government papers - to announce a purchase plan to mop up the surge in supply.

Last year, the RBI bought ₹3.3 lakh crore worth of government securities through open market operations, which helped it manage a record ₹13.7 lakh crore government borrowing programme.

(With inputs from agencies)