RBI’s sovereign bonds holdings to be treated at par with market; direct debt switch unlikely in FY26: Report | Stock Market News
The Reserve Bank of India (RBI)‘s holding of sovereign bonds, due to mature in the next financial year 2025-26 (FY26) will likely be treated at par with the market by the government rather than swapped for longer-dated debt. A government official told news agency Reuters that the RBI holds around ₹1 lakh crore of bonds maturing in FY26, as per market estimates.
The government was expected to swap these for longer-dated debt before the budget on Saturday, a practise undertaken in earlier years that typically means a smaller gross borrowing target. According to the report, however, it did not do so this time, and, as a result, the gross borrowing target for 2025-26 was raised to ₹14.82 lakh crore from 14.01 lakh crore in the current fiscal year.
RBI bond holdings
“In a normal course, the government is expected to go to the market, issue those bonds … give it to the bondholders. These bondholders can be public, institutions or RBI,” said Ajay Seth, Economic Affairs Secretary, as per the report. “The government would like to deal with that issue through a market-based operation rather than a bilateral deal,” added Seth.
The government aims to achieve a switch target of ₹2.50 lakh crore in the next financial year, but no specific amount is earmarked for the buybacks yet. He explained that the government’s cash position at the start of 2025-26 would dictate whether there would be any buybacks in that specific period.
Seth said that this financial year, the government bought back bonds worth around ₹88,200 crore, intending to keep as little cash as feasible. After keeping it on hold for two years, the RBI will likely reduce the key interest rate by 25 basis points this week. This would complement the Budget initiatives to push consumption-led demand, though the sliding rupee remains a concern.
Economists believe that since the retail inflation has remained within the RBI’s comfort zone (less than six per cent) for most of the year, the central bank can take rate action to boost growth hit by sluggish consumption. The RBI has kept the repo rate (short-term lending rate) unchanged at 6.5 per cent since February 2023. The last time the RBI reduced the rate was during the COVID pandemic (May 2020); thereafter, it gradually rose to 6.5 per cent.
