G-Sec Acquisition Programme

  • IASbaba
  • October 9, 2021
  • 0
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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.

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