Benchmark yield shoots up after RBI scraps liquidity injection plan

Benchmark yield shoots up after RBI scraps liquidity injection plan

The benchmark bond yield shot up after the Reserve Bank of India scrapped the G-Sec Acquisition Programme (GSAP), a dedicated liquidity window reflecting a resumption of liquidity normalisation.

The benchmark bond yield increased to 6.31 percent in the morning trade Friday from Thursday’s lowest point of 6.25 percent.

The total liquidity injected into the system during the first six months of the current financial year through open market operations (OMOs), including G-SAP, was Rs 2.37 lakh crore, as against an injection of Rs 3.1 lakh crore over the full financial year 2020-21.

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, said RBI governor Shaktikanta Das in the policy statement.

“RBI 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).”

The Reserve Bank’s secondary market G-Sec Acquisition Programme (G-SAP) has been successful in addressing market concerns and anchoring yield expectations in the context of the large borrowing programme of the government.

Coupled with other liquidity measures, it facilitated congenial and orderly financing conditions and a conducive environment for the recovery.

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