Government Securities Acquisition Programme (G-SAP)

Q Why is it in News ?

The RBI, for the year 2021-22, has decided to put in place a secondary market Government Security (G-sec) Acquisition Programme or G-SAP 1.0.

Q What is Government Securities Acquisition Programme (G-SAP)?

It is part of RBIs Open Market Operations.
Under the programme, the RBI will commit upfront to a specific amount of Open Market Purchases of government securities.
The first purchase of government securities for an aggregate amount of Rs. 25,000 crore under G-SAP 1.0 will be conducted on 15^th April, 2021.

Q What is its objective?

To avoid 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.

Q What is significance of this programme?

It will provide certainty to the bond market participants with regard to RBI’s commitment of support to the bond market in FY22.
The announcement of this structured programme will help reduce the difference between the repo rate and the 10-year government bond yield. That, in turn, will help to reduce the aggregate cost of borrowing for the Centre and states in FY 2021-22.
It will enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.
The slope of the yield curve gives an idea of future interest rate changes and economic activity.

Q What is Open market operations?

Open Market Operations:
- These are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
- If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
- Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
- It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.