Even after the Reserve Bank of India (RBI) cut the repo rate by a cumulative 125 basis points and announced liquidity injections of about ₹6.6 lakh crore in the current financial year, government bond yields have shown little downward movement. Market participants describe this as unprecedented, given that it represents the largest open market operation (OMO) programme in India’s monetary history.
Including cash reserve ratio (CRR) releases, buy–sell swaps and currency leakage, total liquidity infusion is estimated at around ₹5.5 lakh crore. However, the scale of intervention has led to uneven transmission across financial markets.
On the positive side, bank lending has become more attractive for corporates. As bank lending rates have fallen faster than corporate bond yields, the pricing gap between the two has narrowed. The spread between the 10-year AAA corporate bond yield and the weighted average lending rate (WALR) declined from about 200 basis points in April 2024 to 150 basis points by November 2025. A similar trend has been seen in high-rated NBFC debt, prompting stronger borrowers to shift back to bank loans.
With nearly 65% of loans now linked to external benchmarks, transmission to bank lending rates has been relatively swift. WALR on fresh rupee loans fell by 62 basis points in 2025 to 8.71% by November.
However, transmission has been far less consistent in money and bond markets. Commercial paper and certificate of deposit rates declined sharply earlier in the year, but have been rising again since August 2025, even as monetary policy eased further. Similarly, the 10-year AAA corporate bond yield, which fell until early June, has since edged higher.
The divergence is most evident in state development loans, where average borrowing costs during April–December 2025 remained largely unchanged from the previous year. Analysts note that as the RBI manages government debt in the absence of an independent debt management agency, yield behaviour has broader implications. Some suggest OMOs should focus on the most liquid benchmark securities to improve yield signalling and restore confidence across the curve.
