Thread by @VaradMarkets

India #RBI formally launches #QE:

▪️ Named 'Government Securities Acquisition Programme', G-SAP 1.0
▪️ Commits to specific amt of G-Sec purchases (INR 1.0 trn in Q1 FY2021-22)
▪️ At annualized INR 4 trn, that is ~7% of RBI Balance Sheet BS (Fed's $1.44 trn QE => ~19% BS)

1/5

G-SAP = YCC?
▪️ While RBI prefers 10yr yield to be ard 6.0%, formal Yield Curve Control YCC targets specific yld for specific tenor (BOJ Japan & RBA Australia) => unknown amt of bond purchase to meet yld target
▪️ RBI's G-SAP more QE (pre-announced amt) than YCC

@dugalira
2/5

G-SAP v/s OMO?
▪️ Practically not much diff but RBI generally does not commit to purchase amt under OMO
▪️ OMO more for liquidity mgmt => inject as well as absorb liquidity
▪️ QE purchase necessarily injects liquidity; targets backend ylds => BS expansion => Reserve Money ⬆️

3/5

▪️ Since pre-COVID, RBI's BS has expanded 28% to ~INR 57 trn
▪️ But 63% of that came from increase in Foreign Currency Assets (FCA) (FX Intervention) and not only from OMOs => RBI's G-Sec purchase constituted only 28% of that expansion

@Macro_Maniac_ @SergiLanauIIF
4/5

▪️ Consequently, on liability side, Currency in Circulation⬆️by ~24%

Since pre-COVID, Feb'20:
▪️ Reserve Money +17.5% (currency demand)
▪️ Broad Money M3 +14.75%
▪️ Bank Credit +7.5% (lending)

For perspective,
RBI's BS Size = 26% of GDP
US Fed's BS Size = 35% of GDP