G-Sec Acquisition Programme

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.