Objective of G-SAP
- As part of G-SAP 1.0, the RBI will agree in advance to buy a certain quantity of government securities on the open market in order to maintain a steady and orderly evolution of the yield curve amid favorable liquidity conditions.
- To control the economy’s liquidity and produce a stable and orderly evolution of the yield curve.
- A yield curve is a line that represents the yields (interest rates) of bonds with similar credit ratings but various maturities.
- The yield curve’s slope provides insight into potential future changes in interest rates and economic activity.
Government Securities Acquisition Program (G-SAP)
The Government Securities Acquisition Program (G-SAP) is essentially a much bigger and more unconditional Open Market Operation (OMO). The G-SAP is an OMO with a “unique character,” as per RBI. The term “unconditional” in this context means that RBI has promised up front that it will purchase G-Securities regardless of the state of the market. A marketable instrument known as Government Security (G-Sec) is one that the federal or state governments have issued. It acknowledges the financial responsibilities of the government. The government securities will be bought by the RBI through a multi-security auction using the multiple-price approach. It will make five different types of government securities purchases through a multi-security auction with various price methodologies. The Liquidity Adjustment Facility (LAF), OMOs, and Operation Twist will continue to operate as usual with G-SAP, and the program is integrated into the central bank’s overall liquidity planning framework for 2021–2022. The government can borrow money by using G-Secs, which are instruments of government-issued debt. The RBI has announced that as part of the G-sec Acquisition Program, it will buy government securities on the open market for Rs. 25,000 crores in August 2022 (G-SAP 2.0), which is why it has recently made headlines.