Under the programme, the RBI will commit upfront to a specific amount of open market purchases of government securities.
During the first quarter of the current fiscal, the RBI said it will purchase Rs 1 lakh crore of G-sec from the secondary market, as part of G-SAP 1.0.
The first purchase of government securities for an aggregate amount of Rs 25,000 crore will be conducted on April 15, 2021.
“The move to introduce G-SAP – secondary market G-sec acquisition programme is a master stroke by the RBI. This would reign in sharp spike in G-sec bond yields,” Kotak Mutual Fund CIO (Debt) and Head Products Lakshmi Iyer said.
IDFC Mutual Fund’s Head (Fixed Income) Suyash Choudhary said, “By providing upfront guidance on the extent of near term bond supply absorption that the central bank will undertake it is ensuring that the market doesn’t face undue volatility.”
With this step, the RBI is not trying to control either direction of movement or trying to set a line in the sand with respect to yields. Rather it is attempting to control the volatility as this evolution occurs, he said.
Emkay Global Financial Services Lead Economist Madhavi Arora said G-SAP could lead to much lower sovereign risk premia ahead amid the elevated borrowing calendar this year.
“We reckon the RBI will continue to strive fixing artificially skewed yield curve and maintain its preference for curve flattening,” she said.
Edelweiss Mutual Fund Bond CIO (fixed income) Dhawal Dalal said that market participants have always longed for an RBI Open Market Operations (OMO) purchase calendar and the central bank probably heard their prayers and decided to follow through GSAP 1.0.
“It will provide certainty to the bond market participants with regard to RBI’s commitment of support to the bond market in FY22 and will also help reduce term premiums on the long-end,” Dalal said.
According to HDFC Securities MD and CEO Dhiraj Relli, the announcement of G-SAP 1.0 was a positive surprise and shows the resolve of the RBI to keep G-sec rates under check despite the large borrowing programme.
Nippon India Mutual Fund CIO (Fixed Income) Amit Triphati said the G-SAP 1.0 programme combined with ongoing OMOs clearly puts on paper the commitment of RBI to both support the government borrowing programme and anchor yield expectations.
For the markets, the programme was the most positive announcement from the policy and it bodes well for medium to long end government securities which has already seen some softening in yields today post the announcement, Principal Asset Management Head (Fixed Income) Bekxy Kuriakose said.