Switch Auction by RBI |ForumIAS

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News: The RBI conducted a switch auction where the government bought back ₹6,309 crore of G-Secs and issued ₹6,431.797 crore of bonds.

About Switch Auction by RBI

A Switch Auction (or Conversion Auction) is a debt management tool used by the Reserve Bank of India (RBI) on behalf of the Government of India to manage its repayment burden by replacing short-term debt with long-term debt.
Objective: The objective is to ease redemption pressure, smoothen maturity profile and manage repayment obligations more effectively.
Mechanism
- Swap: The government repurchases “source” securities (bonds nearing maturity) and simultaneously issues new “destination” securities (longer-dated bonds) of equivalent market value.
- No new debt: This process changes the timing of repayments without increasing the government’s overall borrowing target or requiring immediate cash outgo.
Significance: It helps the government manage debt efficiently by spreading repayments over a longer period while maintaining borrowing plans.

Government securities are low-risk debt instruments issued by the government that offer fixed returns and are backed by a sovereign guarantee.