Monetary coverage Review: RBI set to cease G-SAP operations

Hinting that normalisation of liquidity overhang is on the anvil, the Reserve Bank of India (RBI) has determined to discontinue the federal government securities acquisition programme (G-SAP).
The RBI launched G-SAP to deal with the considerations of the monetary markets on liquidity after the outbreak of the Covid pandemic. “Given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation and the expected expansion of liquidity in the system as government spending increases in line with budget estimates, the need for undertaking further G-SAP operations at this juncture does not arise,” RBI Governor Shaktikanta Das stated whereas unveiling the bi-monthly financial coverage.
However, he added that the Reserve Bank would stay in readiness to undertake G-SAP as and when warranted by liquidity situations and in addition proceed to flexibly conduct different liquidity administration operations together with Operation Twist (OT) and common open market operations (OMOs).

“Our entire approach is one of gradualism. We don’t want suddenness or surprises. More so, we realise as we approach the shore, we don’t want to rock the boat. Because we realise there are lives and journeys beyond the shore, so we don’t want surprises. Our approach will be calibrated, it will be an approach of gradualism,” Das stated.

The Reserve Bank’s secondary market G-Sec Acquisition Programme has been profitable in addressing market considerations and anchoring yield expectations within the context of the massive borrowing programme of the federal government, he stated.