MARKETS EXPECT ANOTHER ROUND OF G-SAP OF ₹1-1.5 L-CR IN Q2: AXIS ECONOMIST

Market expects an expansion of Reserve Bank of India’s bond buying programme in the second quarter of the financial year with an addition of another ₹1-1.5 lakh crore, said Saugata Bhattacharya, chief economist at Axis Bank.

The three-day meeting of the RBI’S monetary policy committee meeting will conclude on June 4. The rate-setting panel is likely to hold key policy rates over fears of rising inflation.

“One of the key announcements or indications that we are looking for in the policy announcement is an extension for the Government Security Acquisition Programme (G-SAP). Markets are expecting another ₹1-1.5 lakh crore of G-SAP in the second round,” Bhattacharya told reporters on Thursday.

In April, the central bank announced secondary market purchases of ₹1 lakh crore in sovereign bonds under the G-SAP. Experts now believe that the RBI might expand this programme to support the burgeoning borrowing programme.

According to Bhattacharya, while it was feared that the banking sector’s ability to buy government bonds will be reduced due to an uptick in credit growth, that revival is yet to firm up. Therefore, lenders will still have more room than was originally anticipated.

“Remember, last year there was a significant support to the government’s borrowing programme from the banks because there was no credit opportunity. Moreover, with the RBI’S liquidity infusion, banks had to buy some statutory liquidity ratio bonds in search of yields,” he added.

However, he believes there will be some slippage in the government borrowing target. “We hope it is not too much beyond from the 6.8% centre’s deficit target for FY22.”