RBI announces Open Market Purchase under G-sec Acquisition Programme 2.0

What is the News?

Reserve Bank of India(RBI) has announced that it will conduct an open market purchase of government securities worth Rs 25,000 crore under the G-sec Acquisition Programme (G-SAP 2.0).

About G-Sec Acquisition Programme(G-SAP):

1. G-Sec Acquisition Programme(G-SAP) is basically an unconditional and a structured open market operation (OMO), of a much larger scale and size.
2. The word ‘unconditional’ here connotes that RBI has committed up front that it will buy G-Secs irrespective of the market sentiment.

Aim of G-SAP:

1. The aim of G-SAP is to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. 

Benefits of G-SAP:

1. G-SAP is expected to bring down the cost of borrowings for the government. Further, it will counter the upward pressure on yields due to a higher government borrowing programme.
   • Yield: It is the annual percentage rate of return earned on a security. Yield is a function of a security’s purchase price and coupon interest rate. But, the yield fluctuates according to numerous factors, including global markets and the economy.

Concerns:

1. Experts are of the opinion that with the announcement of G-SAP, the rupee has already depreciated. There is a trade-off between a tumbling rupee and lower borrowing costs. 
2. Additionally, too much liquidity will drive up inflation.