Hinting that normalisation of liquidity overhang is on the anvil, the Reserve Bank of India (RBI) has decided to discontinue the government securities acquisition programme (G-SAP).
The RBI launched G-SAP to address the concerns of the financial 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 said while unveiling the bi-monthly monetary policy.
However, he added that the Reserve Bank would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions and also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular 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 said.
The Reserve Bank’s secondary market G-Sec Acquisition Programme has been successful in addressing market concerns and anchoring yield expectations in the context of the large borrowing programme of the government, he said.