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Solution: b)
The RBI Governor unveiling the secondary market G-sec acquisition programme – G-SAP – in the recent monetary policy had many experts pointing out that this move is very similar to the quantitative easing programmes initiated by central banks of advanced economies.
But while the programme is styled like QE of advanced economies, the RBI has not gone that path entirely. It’s QE is very short-term in nature, is restricted to G-secs and the intention is not to stimulate the economy.
The announcement of G-SAP 1.0, which promised to buy government bonds worth ₹1 lakh crore from secondary market in the first quarter of 2021-22 was done mainly to calm bond markets. Yields of 10-year bond yields, that had hovered around 5.90 per cent prior to the Union Budget had shot higher past 6.20 per cent since then, mainly due to the large central government borrowing of ₹12.03 lakh in FY22. If the State government borrowings are to be added, the total borrowings could near ₹20 lakh crore.
The other reason behind the G-SAP was to help the government borrowing sail through smoothly.
While the G-SAP looks like a QE programme, it is not entirely so. One, the RBI has given visibility about the purchases in just one quarter. The quantum of purchases can be much lower/higher in the subsequent quarters. Typical QE programmes of other countries promise purchase of specified value of bonds for an extended period.
Two, the QE programmes promise purchases of variety of securities such as mortgage backed securities and real estate bonds in order to provide liquidity to specific sectors. RBI’s program is limited to government bonds.
The aim of the QE programmes in other countries is to impart liquidity in to the system to promote growth. The aim of the G-SAP is not to infuse liquidity.
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