RBI’s Bond Hoard Hits $14.88 Trillion - Why Traders Think It Won’t Stay This High

The Reserve Bank of India (RBI) holdings of the securities of the Indian government reached a record in absolute terms following aggressive debt purchases, but analysts are anticipating a reduction as the year progresses.

RBI Bond Holdings Rise

The central bank's holdings rose to 12.78% of the outstanding issuances as of March-end from 10.55% at December-end, as per data released by the RBI on Wednesday.

According to a Reuters report, in absolute terms, this amounts to approximately Rs 14,88 trillion ($173.55 billion), a record-high, marking an increase of Rs 2.83 trillion in the January-March quarter.

Why Will The Record High Ease?

According to analysts, the central bank's holdings might diminish in the coming months as some of the debt matures.

RBI holds between Rs 500 billion to Rs 1 trillion of securities that mature in this financial year.

What Do Analysts Say?

"Holdings may further go up for the current quarter, but in most cases, OMOs are now behind us, especially after the central bank announced a reduction in the cash reserve ratio and a reverse repo," a Reuters report cited VRC Reddy, the treasury head at Karur Vysya Bank.

The report also cited Gaura Sen Gupta, the Chief Economist of IDFC First Bank, who said that the central bank aims to keep liquidity above 1% of deposits till March 2026.

Additionally, Market Expert and Chief Operating Officer at Samarth Wealth Management, Prashant Sadarangani said that the "risk appetite has definitely increased in the equity markets as a result of this."

"Rate sensitive sectors like banks, real estate and infra will see a strong boost," he added.

"We honestly don't expect more OMO purchases for the rest of this financial year," Sadarangani further added.

RBI: Recent Developments

The central bank has announced 100 basis-point reduction in banks' cash reserve ratio, effective from September to December, in its policy meeting in June.

Additionally, the RBI has also cut its repo rate by 50 basis points and shifted its policy stance to neutral.

RBI will conduct a seven-day variable rate reverse repo auction for Rs 1 trillion on Friday.

Market participants interpret this as part of the central bank's strategy to align the weighted average call rate closer to the repo rate, which will further tweak liquidity.

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