Significance of the Government Securities Acquisition Program (G-SAP)
- It will provide the bond market with more security. This year, the Government borrowed more money, thus RBI must make sure the Indian market doesn’t suffer, which lowers the cost of borrowing for the government and maintains the yield.
- To enable a steady and controlled evolution of the yield curve, this open market purchase will be made.
- The difference between the repo rate and the yield on ten-year government bonds will be narrowed as a result.
- It will almost fulfill the function of an OMO calendar, which the bond market had long wished for.
- With its extensive borrowing program (such as the National Infrastructure Pipeline Project), the Indian government can now sigh with satisfaction as long-term borrowing costs decline.
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.