Reserve Bank of India Launches True Form of QE

By Sophia Rodrigues

(Sydney, April 7, 2021) -- After launching several forms of unconventional monetary policy instruments in the past year, the Reserve Bank of India is finally embarking on a true form of Quantitative Easing – secondary market purchases of government bonds.

Following the conclusion of the monetary policy meeting on Wednesday, Governor Shaktikanta Das announced the RBI will launch government bond-buying program where it will commit upfront to a specific amount of open market purchases of government securities.

The RBI left key interest rates unchanged at the policy review and dropped its date-based forward guidance but retained “state-based” guidance.

The RBI said it will “continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.”

G-SAP 1.0

The new bond-buying program is called “G-sec Acquisition Program” or “G-SAP 1.0” to give it a distinct character, Das said. This may be to differentiate it from the open market operations the RBI has been conducting in the last two years, called “operations twists” where it usually sells short-term securities and buys at the other parts of the curve.

The RBI will buy 1.0 trillion rupees (US$13.5 billion) of bonds in the current quarter, and the first purchase of 250.0 billion rupees (US$3.4 billion) will happen on April 15.

Das said the aim of the program is to “enable stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.”

“The positive externalities of G-SAP 1.0 operations need to be seen in the context of those segments of the financial markets that rely on the G-sec yield curve as a pricing benchmark,” he added.