RBI Buys Back the Future: ₹42.62 Billion Bonds Retired with a Premium Twist

Image Source: The Economic Times

In a prudent effort to lower its debt, Reserve Bank of India (RBI) has successfully conducted a buyback of ₹42.62 billion government securities maturing in 2026. The 6.99 percent coupon-bearing paper was bought at a cut-off price of ₹101.02 per ₹100 face value, reflecting investor confidence and a premium over par.

Key points of the repurchase:
- Amount of buyback: ₹42.62 billion
- Bond series: 6.99 percent Government Security to mature in 2026
- Cut-off price: ₹101.02, at a premium over face value
- Yield implications: The premium pricing is a result of lower effective yields and captures RBI's preference to smoothen debt servicing costs.

Strategic context:
- The repurchase is one of a series of ₹600 billion repurchase operations with the aim of reducing the short-term liabilities and enhancing the maturity profile of government debt
- Previous buyback tranches saw lukewarm response, but the recent auction saw improved participation on the strength of good pricing and improved liquidity conditions
- By prepaying them, the government avoids paying interest in the future and enhances fiscal flexibility
Market implications:

- It would ease the pressure on bond yields and support liquidity in the banking system - It also reflects RBI's proactive strategy to deal with public debt in the context of international rate volatility and domestic fiscal consolidation.

Sources: CNBC TV18, Reserve Bank of India, Business Standard, Hindustan Times