RBI may buy govt debt: Analysts

The central bank may abandon years of austerity to vacuum up government debt directly after the government raised its borrowing target to $159 billion, according to market participants.

Options being touted include increasing the use of tools already deployed, such as open-market purchases of bonds and Federal Reserve-style 'Operation Twist,' according to DBS Bank Ltd's

Radhika Rao. If required, even primary market purchases or private placements could be considered, she said.

The RBI hasn't directly bought sovereign debt since a law barring the practice came into effect in April 2006. But given the need for massive state spending to lift Asia's third-largest economy from the pandemicinduced crisis, even officials who crafted the tougher rules have joined the growing number of advocates urging the RBI to buy the nation's debt as it mulls more policy responses.

"The RBI will be concerned about market stability to ensure yields don't spike and hamper monetary transmission," said Shailendra Jhingan, CEO at ICICI Securities Primary Dealership Ltd. "We expect OMO purchases to be the preferred route."