According to market estimates, the RBI has almost 1 trillion rupees ($11.5 billion) in bonds that mature in the upcoming fiscal year. Before Saturday’s budget, the government was supposed to exchange these notes for longer-dated debt.
According to a senior government official, the government would probably regard the Reserve Bank of India’s (RBI) holding of sovereign bonds set to maturity in the upcoming fiscal year on an equal footing with the market rather than exchanging them for longer-dated debt.
According to market estimates, the RBI owns about 1 trillion rupees ($11.5 billion) in bonds that mature in the upcoming fiscal year. The government anticipated exchanging these bonds for longer-dated debt before Saturday’s budget, a practice used in previous years that usually results in a lower gross borrowing target.
But this time, it didn’t, according to news agency Reuters, and as a result, the gross borrowing goal for 2025–2026 was increased from 14.01 trillion rupees in the current year to 14.82 trillion rupees.
RBI Bond Holdings:
“Normally, the government is supposed to issue such bonds, go to the market, and distribute them to the bondholders. On Sunday, India’s Economic Affairs Secretary Ajay Seth stated that these bondholders may be members of the public, institutions, or the RBI.
“Instead of a bilateral deal, the government would prefer to handle that issue through a market-based operation.” Although no sum is set aside for buybacks, the government intends to carry out a switch objective of 2.50 trillion rupees in the upcoming fiscal year.
According to Seth, the government repurchased bonds totaling about 882 billion rupees to maintain as little cash as possible this fiscal year.
According to him, the government’s financial situation at the beginning of 2025–2026 would determine if any buybacks would occur.
Although the declining rupee remains a worry, the RBI is expected to lower the benchmark interest rate by 25 basis points this week after holding it steady for two years. This would support the Union Budget’s efforts to stimulate consumption-led demand.
Since retail inflation has stayed below the Bank’s comfort level of less than 6% this year, the central bank can raise interest rates to stimulate growth hampered by weak consumer spending.
Since February 2023, the Reserve Bank of India (RBI) has maintained the short-term lending rate, or repo rate, at 6.5%. The RBI last lowered the rate in May 2020, during the COVID-19 pandemic, and then progressively increased it to 6.5%.
