RBI Urged to Boost Bond Purchases to Cool Yields Amid Liquidity Crunch

• Market participants urge the Reserve Bank of India (RBI) to significantly increase bond purchases to cool elevated yields, despite four interest-rate cuts and record debt purchases.
• Estimates suggest the RBI may need to buy 2-5 trillion rupees ($22-55 billion) in bonds by March 2027 to address liquidity issues.
• The 10-year benchmark yield has surged, with only 10% of rate cuts transmitted to bond yields, far below the 83% average of previous cycles, indicating "transmission trouble."
• Despite record liquidity injection of 14.5 trillion rupees since late 2024, long-term bond yields have barely reacted, and corporate borrowing costs remain high.
• Pressure on the rupee and waning demand from key investors like insurers and pension funds are also contributing to the challenge, pushing firms towards bank loans.

Why It Matters: RBI faces pressure to ramp up bond purchases to address high yields and poor monetary policy transmission.