Negative real interest rate for savers behind RBI's govt bond buying plan

Central bank acknowledges further interest cuts unlikely as a recent rollback of small savings rate cut showed.

The announcement of government securities acquisition programme (G-SAP) by the Reserve Bank of India (RBI) during Wednesday’s monetary policy announcement is akin to the quantitative easing (QE) by the central banks of developed countries.

Quantitative easing is large scale buying of financial assets like corporate and government bonds or even stocks. Such a move increases the money supply and brings down long term interest rates. Lower cost of borrowing then stimulates economic growth.

In developed nations, the interest rate is near zero: one of the main reasons why central banks resort to such asset purchases to boost economic growth.