RBI Purchases 47% Of FY26 Government Bond Issuances to Support Banking Liquidity

The Reserve Bank of India has purchased a significant share of the Centre’s bond issuances in FY26 to support liquidity conditions in the banking system. Public data showed that the RBI bought 47% of government securities issued between April 4, 2025, and February 13, 2026.

The Centre raised ₹13,65,000 crore during this period as part of its gross borrowing programme. The RBI’s interventions came at a time when sustained government borrowing was tightening liquidity and adding upward pressure on yields.

RBI’s Large-Scale Bond Purchases and Liquidity Support

The RBI conducted Open Market Operations purchase auctions amounting to ₹6,39,203 crore during the period. These purchases injected durable liquidity into the financial system at a time when heavy borrowing was absorbing funds from the banking sector.

By buying bonds from the secondary market, the central bank helped counter tightening liquidity conditions. The move also ensured the orderly functioning of the bond market amid elevated supply of government securities.

Impact On Borrowing Conditions and Market Stability

Sustained government borrowing often reduces systemic liquidity and contributes to firmer bond yields. The RBI’s purchases helped cushion this effect by returning liquidity to the banking system.

The intervention prevented excessive hardening of yields despite large volumes of government securities entering the market. It also contributed to maintaining stability in secondary market trading during the borrowing cycle.

Liquidity Conditions Through FY26

Liquidity remained largely in surplus through most of FY26. However, the system experienced intermittent periods when liquidity slipped into deficit.

Conditions began tightening around December 2025, prompting the RBI to increase the frequency and scale of its OMO purchases. These operations were aimed at stabilising short-term rates and ensuring sufficient funds remained available for credit demand.

Effect On Money Market and Overnight Rates

The RBI’s liquidity infusion played a key role in keeping money market rates contained. It also helped overnight rates trade close to the policy repo rate, reducing volatility during deficit episodes.

By aligning short-term rates with policy levels, the central bank supported smooth transmission of monetary policy. The measures ensured that funding costs for financial institutions remained consistent with overall policy objectives.

Read More: Indian Bond Market Sees Mixed Trends Amid Heavy Supply.

Conclusion

The RBI’s decision to purchase 47% of the Centre’s bond issuances in FY26 highlights its role in maintaining liquidity and market stability. The purchases helped offset the impact of sustained government borrowing on systemic liquidity.

Increased OMO activity since December 2025 further ensured that short-term rates remained aligned with policy benchmarks. These actions collectively supported credit flow and financial market functioning during the fiscal year.

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