RBI Governor Shaktikanta Das has said the central bank will put in place what is termed as a "secondary market G-sec acquisition programme" or G-SAP 1.0 for the year 2021-22.
Under G-SAP 1.0, the RBI will commit upfront to a specific amount of open market purchases of government securities to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
"The endeavour will be to ensure congenial financial conditions for the recovery to gain traction. For Q1 of 2021-22, the RBI has decided to announce a G-SAP of Rs 1 lakh crore. The first purchase of government securities worth Rs 25,000 crore under G-SAP 1.0 will be conducted on April 15," Das said.
He said positive externalities of G-SAP 1.0 operations need to be seen in the context of those segments of the financial markets that rely on the G-sec yield curve as a pricing benchmark. "In addition, the extension of Held-to-Maturity (HTM) dispensation opens up space for investments of more than Rs 4 lakh crore," said Das.
He said the RBI will continue to deploy regular operations under the LAF, longer-term repo or reverse repo auctions, forex operations and open market operations, including special OMOs to ensure liquidity conditions evolve in consonance with the stance of monetary policy and financial conditions are supportive for all stakeholders.
He said the Reserve Bank's 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.
He said given the strong interconnectedness of financial markets, there was an upsurge of investor unease in India despite repeated assurances and forward guidance on liquidity given by the RBI. The benchmark 10-year yield, which traded at 5.93 per cent (on an average) during April 2020-January 2021, spiked to 6.25 per cent on March 10, 2021 before coming down again.
In sync with G-sec yields, corporate bond yields also hardened across issuers and rating categories in the recent period. Since end-January 2021, AAA corporate bond yields of 3-year and 5-year maturities have firmed up by 30 bps and 31 bps, respectively, by March 31, 2021. Reflecting these developments, corporate bond issuance in February at Rs 45,685 crore has moderated from its peak of Rs 88,130 crore recorded in December 2020.
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