The Indian central bank has taken a significant policy step: the RBI resumes government bond purchase after a six-month pause. This marks a shift in its liquidity-management strategy.
What Happened
- The RBI net bought government securities worth ₹124.70 billion (approx. US $1.41 billion) in the week ending 7 November 2025.
- This move follows a gap of roughly six months during which the RBI had not been an active net buyer in the secondary G-sec market.
- The buying helped bring down the 10-year government bond yield by about 2 basis points to ~6.51%.
- Market participants expect further open market operations (OMO) auctions possibly from December or January.
Why the Move Matters
Liquidity Management
The RBI’s move signals that the banking system’s liquidity may be under pressure, or the central bank wants to proactively ensure ample liquidity. The bond purchases are one tool for injecting funds into the system.
Yield & Bond Market Impact
By participating in the secondary market, the RBI helps suppress yields—a beneficial outcome for government borrowing costs and could support broader interest-rate stability.
Signaling Effect
It sends a message that the RBI is ready to act on market conditions and manage interest rates and liquidity not just via policy rates but also via balance-sheet tools.
Borrowing & Supply Dynamics
With large government borrowing ahead, and concerns over auction demand weak in recent times (for example, an auction of a 7-year bond was cancelled due to low demand) the RBI’s presence reassures the market.
Rate-Cut Expectations / Inflation Navigation
Though CPI inflation is low, core inflation remains sticky. The RBI’s buyback move may influence expectations on when the policy rate could be cut, by showing willingness to support the system. The Economic Times
Background & Context
Earlier in the year, the RBI was more aggressive: via OMOs and screen-based operations it had net bought large volumes of G-secs (for example, from Jan to mid-May the total was ₹4.84 trillion).
However, the months following saw no major net buying, indicating perhaps better liquidity or strategic pause. The return now suggests a change in assessment.
Potential Implications
- For the Government: Lower yields = lower interest cost. The government’s borrowing programme may become more manageable.
- For Fixed-Income Investors: A buyer of last resort (the RBI) may reduce downside risk on yields, potentially supporting bond prices.
- For Banks & Financial Institutions: Improved liquidity can ease funding pressures, support lending, and possibly reduce interest-rate stress.
- For Monetary Policy: The RBI might use this as a complement to policy rate actions, especially if inflation or growth dynamics change.
- For Borrowing Costs / Debt Market: If yields fall further, it could spur renewed demand for longer-dated bonds, and improve credit conditions.
Risks & What to Watch
- If the RBI has to scale up purchases, it may lead to questions about monetary-financing risks or inflation down the line.
- If inflation spikes or external conditions worsen (e.g., global rates rise), the buyback may have limited efficacy.
- Market supply of bonds remains high—if demand from other sectors remains weak, stabilising yields might become harder.
- Watch out for future OMO announcements: size, frequency, tenor matter.
What’s Next
- Monitor the RBI’s next OMO schedule: will it start in December or January as speculated?
- Track bond yields (especially the 10-year) to see if they continue to soften or reverse.
- Check banking system liquidity indicators (money-market rates, LAF auctions) to see if stress persists.
- Observe government bond auctions: any cancellations, supply changes or demand slips will be key signals.
- Inflation data and macro-indicators: if inflation reaccelerates, the RBI may change stance again.
Conclusion
The fact that the RBI resumes government bond purchase after six months is a meaningful shift in its operational conduct. It underscores the central bank’s sensitivity to liquidity and market-dynamics while signalling its readiness to support the debt-market ecosystem. For stakeholders—governments, investors, banks—this move will influence expectations around yields, borrowing, and policy. Maintaining watch on the subsequent trajectory will be crucial.
