RBI’s second purchase under G-SAP 1.0

May 6, 2021

The Governor of Reserve Bank of India Shaktikanta Das recently announced that the apex bank will make the second purchase of Government securities under the G-Sec Acquisition Programme 1.0 on May 20, 2021.

The first purchase was made in April 2021. The RBI purchased Rs 25,000 crores of Government Securities during the first purchase.

What is the plan?

The RBI is to purchase Rs 35,000 crores of Government Securities in the second purchase. Earlier, the RBI had announced a target of one lakh cores rupees for the GSAP-1.0.

Government Securities

It is a tradeable instrument issued by the Reserve Bank of India to the state government or central government. It can be short term or long term. Short Term Government Securities are the treasury bills with original maturities of less than one year. Long term are bonds with original maturity more than one year.

The Central Government issues both bonds (dated securities) and treasury bills. On the other hand, the State Governments issue only bonds or dated securities.

Factors that affect prices of Government Securities

Demand and Supply of G-Secs
Liquidity, Inflation and changes in interest rates
Changes in foreign exchange, money, credit and capital markets
Development in international bond markets
Policy actions of RBI such as cash reserve ratio, repo rate and open market operations.