The Reserve Bank of India recently announced a Government Security Acquisition Programme, GSAP 1.0. Under the programme, the central bank will purchase government bonds of worth Rs 1 trillion (or one lakh crores of rupees). The first purchase of Rs 25,000 crore is to be made on April 15, 2021.
GSAP 1.0
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The GSAP 1.0 will provide more comfort to the bond market. As the borrowing of the Government increased this year, RBI has to ensure there is no disruption in the Indian market.
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In the fiscal year 2021, the Reserve Bank of India purchased Rs 3.13 trillion worth bonds from the secondary market. However, it was carried out in an ad hoc manner.
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The programme will help to reduce the spread between repo rate and the ten-year government bond yield.
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It will also help to reduce aggregate cost of borrowing for the centre and states in fiscal year 2022.
Impacts of GSAP
The Bombay Stock Exchange (BSE) Sensex had fallen in February and March, 2021 due to rising bond yields. However, after RBI announced the GSAP in its Monetary Policy announcements, the ten-year G-Sec bond yield dropped by 0.6%.
The rise in bond yields led to weakness in the equity markets. Now, the yields will once again stabilize. With this, the FPI inflow into equities could regain momentum.
What are Government Securities?
Government Securities are debt instruments that are issued by GoI to borrow money. There are two types namely short-term instruments that mature in 91 days and long-term instruments that mature anywhere between five years and forty years.