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Will RBI announce G-SAP 3.0?

The Reserve Bank of India (RBI) has given a twist to its Operation Twist exercise, subsuming purchase of longer tenor Government Securities (G-Secs) under the G-Sec Acquisition Programme (G-SAP) 2.0 and simultaneously selling short-term G-Secs under open market operation (OMO).

Under the first such exercise conducted on Thursday, market participants tendered three G-Secs/ GS – 7.17 per cent GS 2028; 6.10 per cent GS 2031; and 6.64 per cent GS 2035 – aggregating ₹78,841 crore against the notified amount of ₹15,000 crore. The RBI purchased G-Secs aggregating ₹15,001 crore.

Simultaneously, the RBI sold three short-tenor G-Secs, all maturing in 2022, but carrying different coupon rates (8.15 per cent, 8.08 per cent and 8.13 per cent) under OMO sale.

Bids received

As against the notified amount of 15,000 crore, the RBI received bids aggregating ₹41,550. It accepted bids aggregating ₹15,000 crore.

Under special OMOs (operation twists) that the RBI usually conducts, the notified amounts for the purchase and sale legs are equal and, therefore, intended to be liquidity neutral. These are aimed at lowering longer-term interest rates, thereby reducing the term premium. Meanwhile, the RBI, on Thursday, said it will conduct the second quarter’s last tranche of G-Sec purchase – 7.26 per cent GS 2029; 6.10 per cent 2031; and 6.64 per cent GS 2035 – under G-SAP 2.0 aggregating ₹15,000 crore on September 30.

Simultaneously, the central bank will sell short-term G-Secs (all maturing in 2022, but carrying different coupon rates – 8.15 per cent, 8.08 per cent and 8.13 per cent – for ₹15,000 crore.

With the last tranche of G-Sec purchase under G-SAP 2.0, the RBI will complete open market purchase of G-Secs aggregating ₹1.20-lakh crore for the second quarter.

Now, all eyes will be on the RBI as to whether it will announce G-SAP 3.0 for the third quarter to infuse liquidity into the banking system so that banks subscribe to G-Sec auctions.

The RBI Governor Shaktikanta Das, in his August 6 statement, said: “It is necessary to have active trading in all segments of the yield curve for its orderly evolution. Our 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.

“Furthermore, 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.”

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