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RBI to inject Rs 1.2L cr through bond purchases in Q2

RBI to inject Rs 1.2L cr through bond purchases in Q2

05 Jun 2021

MUMBAI: The Reserve Bank of India (RBI) will continue with quantitative easing (QE) by raising its government bond purchase programme in the second quarter to ₹1.2 lakh crore, prioritising growth revival in an economy dogged by episodic mobility curbs and demand shrinkage.

The central bank will aim to buy those bonds under a dedicated window — Government Bond Acquisition Programme (GSAP). Besides, it will likely acquire more sovereign papers through open market operations (OMOs), infusing cash into the banking system at a time when localised restrictions on people movement have crippled sections of the real economy.

“The RBI will continue to deploy regular operations under the LAF (liquidity adjustment facility), longer-term repo/reverse repo auctions, forex operations and open market operations, including special OMOs, to ensure that liquidity conditions evolve in consonance with the stance of monetary policy,” Governor Shaktikanta Das said in the bi-monthly policy statement.
The central bank will conduct a ₹40,000-crore GSAP purchase programme on June 17. This time, one-fourth of the quantum would involve state-government bond purchases.

In the second version of the window on offer between July and September, RBI proposed to buy ₹1.2 lakh crore of bonds from the secondary market. “We do expect the market to respond appropriately to this announcement of GSAP 2.0,” the governor said.

During the current year, it has undertaken regular OMOs and injected additional liquidity to the tune of ₹36,545 crore until last month. GSAPs garnered ₹60,000 crore worth bonds from the market injecting that much liquidity into the system.

The benchmark yield rose by three basis points at 6.03 as the second wave of the infection is seen scuttling the country’s nascent growth recovery. The RBI cut its growth projection for this financial year.

“All market measures broadly meet market expectations,” said Vijay Sharma, executive vice president for fixed income at PNB GILT. “The GSAP announcement is an affirmation that the central bank is determined to arrest rising yields, which in turn will likely take care of additional borrowing this year.”

“The benchmark did not react much today as the market has factored in such measures, without which yields would have gone up,” he said.

New Delhi will aim to borrow ₹ 1.58 lakh crore to fund the shortfall in GST cess collections.