RBI set to buy bonds of Rs. 20,000 cr. on 8 July

The Reserve Bank of India announced on Monday it would carry out the first purchase of government securities worth Rs. 20,000 crores on 8 July.

It is a part of its G-Sec Acquisition Programme (G-SAP) to support a post-pandemic market, announced earlier this year.

On 4 June, the RBI Governor Shri Shaktikanta Das announced regarding the open market purchase of government securities worth Rs 1.2 lakh crores under this programme in this FY’s second quarter. The central bank issued a statement detailing it will conduct this upcoming purchase via multi-security auction using the multiple price method.

In related news, the RBI gold bond 2021 scheme is to be issued in 6 tranches, spanning May to September 2021.

An overview of the upcoming purchase

RBI is all set to purchase 5 government securities of different maturities on 8 July.

Regarding upcoming activity under G-SAP 2.0, RBI specified the following details.

• Eligible bidders have been informed to complete their bid submission between 10 – 11 am on 8 July 2021.
• This bid will be accepted on RBI Core Banking Solution (E-Kuber) system in electronic format.
• In case of system failure, participants can submit physical bids to RBI’s Financial Markets Operations Department.

The RBI added that it reserves all rights for the following:

• Decide individual security’s quantum of purchase.
• Accept bids for less than the average price.
• Purchase marginally lower or higher than the average amount after rounding-off.
• Accepting or disqualifying any or all bids partially or wholly without any justification.

The financial body conducted a similar open market purchase worth Rs. 1 lakh crores in this FY’s first quarter under G-SAP 1.0.

Developments in India’s 2021-22 monetary policy

Post economic retraction due to the COVID-19 pandemic, RBI had taken drastic measures to pull up commercial activity as soon as possible. This process saw aggressive rate cuts. The bank came out with this FY’s monetary policy on 4 June, aiming at more market regulatory measures.

It has previously announced the RBI gold bond 2021 scheme and several tranches to support a similar cause.

G-SAP 2.0 is also a part of the same monetary policy of RBI. This saw a continuation of an accommodative monetary policy seen in 2020, with an unchanged repo rate and extension of G-SAP.

It is primarily due to impending inflation prompted by the second wave of coronavirus. Amidst such circumstances, the Central bank sees an expansion of money supply as the only means to boost the economy.

So far, so good

15 April saw the first purchase worth Rs. 25,000 crores held under the G-SAP 1.0.

Shaktikanta Das added that these auctions had sparked interest in several market participants with 4.1 and 3.5 bid cover ratios in the previous 2 auctions.

With the latest G-SAP 2.0, the RBI aims to bring down the yields on long-term government securities. It ensures stable borrowing costs and enhances liquidity, which can together help our economy recover from the pandemic.

Frequently asked questions

What is the deadline to ensure the availability of securities bought in the 8 July purchase?

Successful bidders must ensure their securities are available in their SGL account by 12 pm, 9 July 2021.

When will the results of the first purchase under G-SAP 2.0 be declared?

The results of the upcoming purchase of 8 July will be declared on the same day itself.

When will RBI conduct the next purchase under G-SAP 2.0?

RBI will probably conduct the next purchase worth Rs. 20,000 crores on 22 July 2021.