On Monday, the Reserve Bank of India (RBI) has announced about conducting an open market purchase of Government Securities (G-Secs) under its “G-Sec Acquisition Programme (G-SAP) 2.0” along with a simultaneous sale of G-Secs on September 23.

 

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So far, under G-SAP, the RBI has exclusively conducted standalone G-Sec purchases. But around this time, it is simultaneously conducting the sale of G-Secs given the ample liquidity in the banking system. RBI will acquire three G-Secs of seven to 14 years tenure, aggregating ₹15,000 crores, under G-SAP 2.0 on September 23. Simultaneously, the RBI will sell three short-term G-Sec, all maturing in 2022, aggregating ₹15,000 crores. So far, in the second quarter, the RBI has purchased G-Secs aggregating ₹90,000 crores in four G-SAP auctions. Following the September 23 G-SAP auction, it may conduct one more auction for ₹15,000 crores.

According to Marzban Irani, CIO-Fixed Income, LIC Mutual Funds, the simultaneous conduct of G-Sec purchase under G-SAP and sale of G-Sec will be liquidity neutral. Nevertheless, it may drive up short-term yields.

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