Will RBI’s ₹2 Lakh Crore Infusion Power a Bond Rally?

Indian bond markets rallied after the Reserve Bank of India unveiled major liquidity measures to ease financial conditions. The central bank announced the purchase of ₹2 lakh crore worth of government bonds in four tranches over December and January, along with a $10 billion forex swap to inject liquidity. This twin action helped the benchmark 10-year yield fall to 6.54% from 6.64%, marking a four-month low.

Experts called the move a timely intervention. Lakshmi Iyer of Bajaj Alternate Investment Management said the RBI had little choice but to act, as rising borrowing and tight liquidity had pushed yields higher. Calling the market “wounded,” she said the decision helped calm nerves. Dhawal Dalal of Edelweiss AMC termed it a “liquidity bazooka,” expecting further easing in yields through 2026 as inflation trends lower.

The RBI has already injected about ₹6.5 lakh crore this year through open market operations – the highest on record. Analysts say the move should stabilise yields, improve sentiment, and smoothen monetary transmission.

For investors, falling yields mean short-term gains for bondholders and long-duration debt fund investors, though returns may moderate once yields settle. Dalal expects the 10-year yield could slip below 6.25% in 2026, even if policy rates remain unchanged.