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In a significant move to bolster liquidity in the financial system, the Reserve Bank of India (RBI) has infused ?23,856 crore into the banking system through a buyback of government securities (G-Secs) on June 5, 2025. This marks the second such bond buyback by the central bank in the current financial year (FY 2025–26).

What is a Bond Buyback?

A bond buyback refers to the RBI repurchasing existing government securities before their maturity. Conducted on behalf of the central government, such operations aim to inject durable liquidity into the banking system, improve the liquidity position of banks, and influence interest rates. It is part of the RBI's broader Open Market Operations (OMOs) toolkit.

Broader Liquidity Context

The RBI’s intervention is part of a broader liquidity management strategy, aimed at ensuring stable and surplus liquidity conditions. The central bank has employed various tools in recent months:

• Open Market Operations (OMOs)
• USD/INR Buy/Sell swap auctions
• Variable Rate Repo (VRR) auctions

These tools were especially crucial after the banking system faced a liquidity deficit in late 2024. Since then, the RBI’s operations have restored liquidity, with the system now in surplus mode—estimated at around ?3 lakh crore.

Significance

• Monetary Stability: Enhances the transmission of monetary policy by ensuring banks have sufficient funds to lend.
• Market Functioning: Eases pressure in the bond markets, improves demand for new issuances, and helps manage interest rates.
• Fiscal Management: Supports the government's borrowing program by managing the maturity profile of debt and yields.