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RBI to discontinue GSAP, but stands ready with instruments like operation twist

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The Reserve Bank of India (RBI) on Friday said that the need for undertaking further G-SAP operations does not arise. The central bank, however, said it stands ready with instruments like operation twist.

RBI to discontinue GSAP, but stands ready with instruments like operation twist
The Reserve Bank of India (RBI) on Friday said that the need for undertaking further G-sec Acquisition Programme (GSAP) operations does not arise. The central bank, however, said it stands ready with instruments like operation twist.
Operation twist is a monetary policy strategy used by central banks aimed at stimulating economic growth through lowering long-term interest rates.
While unveiling the bi-monthly monetary policy review, RBI Governor Shaktikanta Das said the liquidity overhang and absence of fresh government borrowing suggest that bond purchases are not required at the moment.
Das said GSAP has been successful and anchoring yield expectations, coupled with other liquidity measures.
RBI further proposed to take 14-day VRRR options in a fortnightly manner.
"Depending on evolving liquidity conditions, the pace of government expenditure, RBI may consider complementing 14-day VRRR actions with 28-day VRRR auctions. VRRR should not be interpreted as a reversal of accommodative policy stance," Shaktikanta Das said.
"V in VRRR will also represent voluntary. There is no compulsion for banks to put money in this window. We don’t want surprises, policy approach will be calibrated and more of gradualism," Das said.
The central bank governor also announced a calendar for fortnightly VRRRs.
Meanwhile, the central bank decided to keep the benchmark interest rate unchanged at 4 percent but maintained an accommodative stance even as the economy is showing signs of recovery after the second COVID wave. This is the eighth time in a row that the Monetary Policy Committee (MPC) headed by Das has maintained the status quo.
RBI had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. MPC decided to keep the benchmark repurchase (repo) rate at 4 percent, Das said while announcing the bi-monthly monetary policy review.
Consequently, the reverse repo rate will also continue to earn 3.35 percent for banks for their deposits kept with RBI. Das said MPC voted unanimously for keeping the interest rate unchanged and decided to continue with its accommodative stance as long as necessary to support growth and keep inflation within the target.
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