RBI to halt GSAP operations, will keep conducting OMOs as needed

RBI Governor Shaktikanta Das (file image)

The Reserve Bank of India has decided to halt the Government Securities Acquisition Programme (G-SAP).

While unveiling the bi-monthly monetary policy review on October 8, RBI Governor Shaktikanta Das said the liquidity overhang and absence of fresh government borrowing suggest that bond purchases are not required at the moment.

Das said G-SAP has been successful and anchoring yield expectations, coupled with other liquidity measures.

He added that the RBI will continue to conduct open market operations as required. He highlighted the stepping up of the variable rate reverse repo auctions and said that the central bank might consider 28-day VRRR auctions too.

The central bank governor also announced a calendar for fortnightly VRRRs.

October 8 - Rs 4 lakh crore
October 24 - Rs 4.5 lakh crore
November 3 - Rs 5 lakh crore
November 18 - Rs 5.5 lakh crore
December 6 - Rs 6 lakh crore.

In the first six months of FY22, liquidity injected through GSAP, including OMOs, stood at Rs 2.37 lakh crore, as compared to Rs 3.13 lakh crore injected in the financial year 2020-21.

Das said the potential liquidity overhang amounts to more than Rs 13 lakh crore and as the economy recovers the measures will evolve with the macroeconomic developments.

A near-consensus view among market participants and stakeholders is that the liquidity conditions need to evolve with market developments and has to be gradual, calibrated and non-disruptive, he said.