RBI’s Bond Buying: A Stimulus for India’s Economy

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The Reserve Bank of India (RBI) has announced plans to purchase government bonds worth ₹1.25 trillion ($14.66 billion) in May 2025. This move is part of the central bank’s ongoing strategy to inject liquidity into the banking system, effectively acting as a de facto rate cut without altering the benchmark interest rates.
The RBI, under Governor Sanjay Malhotra, is spearheading this initiative. Commercial banks and financial institutions stand to benefit directly, as the increased liquidity will ease funding pressures and potentially lower borrowing costs for businesses and consumers alike.
The bond purchases are scheduled for May 2025. This follows a series of similar actions earlier in the year, with the RBI having already infused over ₹4 trillion into the banking system since January 2025.
While the RBI operates nationally, the effects of these bond purchases ripple through the entire Indian economy. Lower interbank lending rates can lead to more affordable loans for businesses and individuals, stimulating economic activity across various sectors.
By purchasing government securities, the RBI increases the money supply, which can lower short-term interest rates and encourage lending. This strategy supports economic growth without the need for formal rate cuts, which can be politically sensitive or have broader market implications. Analysts suggest that this approach enhances the transmission of earlier rate cuts announced in 2025, ensuring that the benefits reach the broader economy.
How does this affect the economy?
The immediate effect is a reduction in the overnight interbank lending rate, easing liquidity constraints for banks. This can lead to lower borrowing costs for consumers and businesses, encouraging spending and investment. Additionally, the increased demand for government bonds can lead to a decline in bond yields, as observed with the 10-year bond yield falling to 6.32% following the announcement.
The RBI aims to maintain liquidity levels at about 1% of total deposits, equating to ₹2.3 to ₹2.5 trillion. This proactive approach suggests that the central bank is committed to supporting the economy through targeted interventions, balancing the need for growth with financial stability
Team Profile

- News Writer
- Saksham Mehta is a journalism graduate from Delhi University and a PGD student in Digital Media at IIMC New Delhi. Passionate about storytelling and news, he is a published author with Zee business. With a keen interest in analytical reporting, digital media, and financial journalism. Saksham is dedicated to making an impact in the evolving world of news and storytelling.
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