RBI to conduct two auctions of Rs 25,000 cr each under G-SAP 2.0
Aug 06, 2021
Mumbai (Maharashtra) [India], August 6 : The Reserve Bank of India (RBI) proposes to conduct two more auctions of Rs 25,000 crore each on August 12 and 26 under G-sec acquisition programme (G-SAP) 2.0.
"We will continue to undertake these auctions and other operations like open market operations (OMOs) and operation twist (OT) among others and calibrate them in line with the evolving macroeconomic and financial conditions," said RBI Governor Shaktikanta Das.
The RBI through its market operations -- both conventional and unconventional -- has maintained ample surplus liquidity since the onset of Covid pandemic to ensure easing of financial conditions in support of domestic demand.
Buoyed by the renewed vigour of capital inflows and the RBI's purchase of government securities in the secondary market, total absorption through reverse repos surged from a daily average of Rs 5.7 lakh crore in June to Rs 6.8 lakh crore in July 2021 and further to Rs 8.5 lakh crore in August so far (up to August 4).
Das said it is necessary to have active trading in all segments of the yield curve for its orderly evolution. Recent G-SAP auctions that have focussed on securities across the maturity spectrum are intended to ensure that all segments of the yield curve remain liquid.
"Our options are always open to include both off the run and on the run securities in the G-SAP auctions and operation twist. It is expected that the secondary market volumes would pick up and market participants take positions that lead to two-way movements in yields."
Das said the central bank's endeavour as the debt manager of both Central and state governments has been to ensure an orderly completion of their borrowing programmes at a reasonable cost while minimising rollover risk.
As G-sec yields serve as a benchmark and have a high signalling value for other segments of the debt market, guidance on orderly path of yields was provided through auction cutoffs, devolvements, cancellations and exercise of green shoe options in primary market operations.
Das said the introduction of uniform price auctions announced recently for issuance of securities up to 14 years tenor is expected to mitigate risks that bidders may face in the primary segment.
The government's decision to accommodate GST compensation payment to states for the first half of the year within the existing cash balances should assuage market concerns on the size of government's borrowing programme this year.
