The Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday said that they have decided to put in place a secondary market Government Security Acquisition Programme (G-SAP) 1.0 for orderly evolution of the yield curve in FY22.
In the first quarter (Q1), the central bank will be conducting G-SAP aggregating Rs 1 lakh crore, where the first purchase of Rs 25,000 crore will be done on April 15, Das said.
"RBI will commit to upfront buying of G-secs. It will ensure financial stability and G-sec stability from global uncertainty," he added while making policy announcements.
“Our objective is to eschew 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," RBI governor Das said.
According to Siddhartha Sanyal, Chief Economist and Head - Research, Bandhan Bank, the G-SAP will almost serve the purpose of an OMO calendar, which had been on the bond market’s wish list for a long time.
"While we don’t think that the central bank is “targeting” any level for bond yields, they clearly recognize the need for anchoring interest rates during the current nascent stage of growth recovery and remain forthcoming in conveying that to the markets," Sanyal said.
"This announcement could lead to much lower sovereign risk premia ahead amid elevated borrowing calendar this year. We reckon the RBI will continue to strive to fix artificially skewed yield curves and maintain its preference for curve flattening," added Madhavi Arora, Lead Economist, Emkay Global Financial Services.
Rohit Poddar, Managing Director, Poddar Housing and Development LTD
said that the equity markets will cheer with the announcement on RBI’s Government Securities Acquisition Programme.
"This will ensure government borrowing at a low cost and be able to address pandemic-related adversities from both economic and healthcare aspects," he opined.
Meanwhile, the central bank expectedly left interest rates unchanged and maintained an accommodative stance as the economy faces a renewed threat to growth due to the resurgence of coronavirus cases. The central bank kept the benchmark repurchase rate unchanged at 4 percent and maintained an accommodative policy stance to support growth.