RBI plans bond switch to ease redemption load

Mumbai: The Reserve Bank of India (RBI), on behalf of the Centre, will be switching bonds of ₹32,000 crore with longer-tenure instruments in an auction on Monday, July 21. This operation is expected to reduce the redemption pressure in the next three fiscal years until FY29 and help reduce the fiscal deficit, economists said.

This comes on the back of another buyback auction scheduled on Thursday for ₹25,000 crore, also with an aim to reduce redemption pressure and the fiscal deficit. The RBI has also bought back bonds maturing in the next few fiscal years for ₹49,599.6 crore since April.

A combined (Centre+state governments) fiscal deficit below 7% is an important condition for global rating agencies to consider upgrading the country's sovereign rating, which currently stands at BBB minus.


The fiscal deficit for the Centre is estimated at 4.4% of GDP in FY26, according to the Budget. For states, the fiscal deficit stood at an average of 2.9% in FY 25

In a bond switch, the government replaces bonds maturing in the near term with long- term instruments.

All securities in the switch auction are of papers maturing in FY27, FY28 and FY29, and are being replaced with bonds maturing after FY32, a year where the redemption pressure is relatively less than previous years, RBI data showed.

The centre had budgeted switches worth ₹2.5 lakh crore for FY26, 60% more than the previous year. Of the total budgeted switches, ₹1.18 lakh crore has already been done since April.