RBI Is Now the Bond Market’s Buyer of First Resort

On March 5, 2026, the Reserve Bank of India bought ₹199 billion of government bonds on the trading platform, taking cumulative screen-based purchases in 2025-26 past ₹1 trillion. That threshold has not been crossed since 2020-21, when the central bank stepped in to prevent market dysfunction and argued that the yield curve was a public good.

The ₹1 trillion of on-screen buying sits alongside ₹8.58 trillion of net open market purchases in 2025-26.  Together, they describe a central bank that is no longer operating at the margin of the bond market, but within it.

Net OMOs at ₹8.58 trillion are nearly four times 2024-25 and the largest ever. Importantly, they now absorb 82.5% of net government borrowing. 

The residual supply left for the market is under ₹2 trillion, compared with ₹8 trillion-₹12 trillion in recent years.

The distribution of purchases reinforces the point. ₹6.19 trillion of the ₹8.58 trillion has been executed after September. Nearly three-quarters of this year’s OMOs have been concentrated in the second half.

The RBI, in recent weeks, appears to have concentrated its screen-based purchases in liquid benchmark securities, alongside regular OMO auctions. This compression in effective market borrowing, combined with the skew in purchases towards liquid maturities, means yields are no longer doing the full work of absorbing supply. Elevated Brent prices, which would ordinarily have pushed yields higher, have had only a limited impact, with the RBI’s operations effectively offsetting that pressure.

The RBI’s large bond purchases were shaped largely by its foreign exchange operations. Net dollar sales of $53.34 billion withdrew over ₹5 trillion of liquidity. That was offset through ₹2.25 trillion of FX swaps and sustained OMOs.

The RBI also effected a 100-basis-point CRR cut, releasing ₹2.5 trillion between September and November. These measures, beyond offsetting the liquidity impact of the RBI’s dollar sales, were aimed at augmenting durable liquidity and easing financial conditions, in line with its policy transmission objectives.

The RBI has been operating with a pre-emptive liquidity bias, allowing for swings in government balances, currency in circulation, and FX operations. The recent OMO intensity is consistent with that approach.

Unyielding Curve
This scale of intervention has not translated into commensurate movement in yields. Despite ₹8.58 trillion of OMO purchases, ₹2.5 trillion of CRR infusion and ₹2.25 trillion of swap-driven liquidity, the 10-year government bond yield is still about 10 basis points above its March 2025 level.

The liquidity infusion accompanied a 100 basis points (cumulative 125 bps since February 2025) cut in the repo rate to 5.25%

The supply backdrop remains unchanged. Central borrowing is elevated, and state borrowing is likely to exceed ₹12 trillion, about 15% higher year on year. Combined gross issuance is in the region of ₹26 trillion-₹27 trillion. OMOs have absorbed a substantial share of this, but not enough to reprice the long end.

The structure of the intervention is also different. OMO operations in 2025-26 have been one-sided, with no offsetting sales. The RBI’s share of government securities had risen to 13.5% as of September 2025 and is likely to approach pandemic-era levels of around 17% by the end of this financial year.

In that context, the scale of screen-based purchases is not incidental.

It allows the RBI to transact without pre-announcement, operate at specific maturities without explicit signalling, and adjust its footprint without committing to a fixed purchase calendar. These features point to OMOs being deployed for yield management as much as for durable liquidity infusion. Moreover, March has seen the RBI manage liquidity through variable-rate repos rather than OMOs, as there have been no primary bond sales by the central government. Moreover, liquidity conditions are ample this time around.

The ₹8.58 trillion of purchases defines the scale of intervention. The ₹1 trillion of on-screen buying defines its nature: yield control.

Taken together, they describe a bond market in 2025-26 in which the central bank is absorbing the bulk of the supply.

Now, what happens from April?

The question for 2026-27 is not the borrowing number, but the RBI’s role in absorbing it. With gross borrowing at ₹17.2 trillion (₹16.09 trillion post switch) and net at ₹11.73 trillion, supply remains heavy. In 2025-26, OMOs absorbed 82.5% of net borrowing, leaving the market conditioned, if not mildly addicted, to the RBI as buyer of first resort. If that pace continues, yields remain contained. If it does not, the adjustment will be sharp. A cold turkey exit from OMO support risks a whiplash in yields, as the market is forced to absorb supply on its own.

This is especially so as the repo rate may have bottomed out in this cycle amidst all the geopolitical dislocations.