G-Sec Acquisition Programme
Part of: Prelims and GS III – Economy
Context The Reserve Bank of India (RBI) on Friday said it was halting its bond buying under the G-Sec Acquisition Programme (GSAP).
- GSAP had succeeded in ensuring adequate liquidity and stabilising financial markets.
What is Government Securities Acquisition Programme (G-SAP)
- The G-Sec Acquisition Programme (G-SAP) is basically an unconditional and a structured Open Market Operation (OMO), of a much larger scale and size.
- Objective: To achieve a stable and orderly evolution of the yield curve along with management of liquidity in the economy.
- A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates.
- The slope of the yield curve gives an idea of future interest rate changes and economic activity.
- By purchasing G-secs, the RBI infuses money supply into the economy which inturn keeps the yield down and lower the borrowing cost of the Government.
What are Government Securities?
- A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
- Such securities are short term or long term.
- G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.