India's Monetary Experiment: How Debt Purchases Are Fueling a Quiet Rate Cut Revolution

The Reserve Bank of India (RBI) has quietly become one of the most aggressive central banks in the world in 2025, deploying a mix of rate cuts and large-scale debt purchases to stimulate growth. Analysts argue these moves—worth over ₹5.2 trillion—amount to a de facto easing cycle akin to quantitative easing (QE), reshaping borrowing costs and investment opportunities in the world’s sixth-largest economy.

The Rate Cuts and Policy Shift

The RBI’s explicit repo rate cuts, reducing borrowing costs to 6% from 6.25%, are just the tip of the iceberg. Analysts highlight that the central bank’s accommodative stance has evolved beyond traditional rate adjustments. With inflation easing to 3.61%—within its 4% target—the RBI has prioritized growth. A further 25 basis point cut is anticipated by year-end, but the real story lies in its unconventional tools.

Debt Purchases: The Quiet QE

The RBI’s debt purchases and forex swaps have injected over ₹5.2 trillion into the economy, dwarfing explicit rate cuts in scale. These purchases, focused on government securities and high-quality fixed-income assets, mirror global QE strategies used during crises. The goal? Lower borrowing costs and spur liquidity. By reducing pressure on banks to raise capital, these measures enable lenders to pass on cheaper rates to borrowers, particularly in housing, autos, and startups.

The impact is clear: variable-rate loans for mortgages and vehicles have already seen EMI reductions, while corporate credit access has expanded. Analysts estimate this could boost FY2026 GDP growth to 6.7%, assuming normal monsoon rains.

Analysts See a “Subtle but Significant” De Facto Easing

While the RBI avoids labeling its actions as QE, the market reads it differently. The combination of liquidity injections, extended TLTROs (Targeted Long-Term Repo Operations), and accommodative guidance creates an environment where rates are effectively cut across the economy. For example, the ₹5.2 trillion infusion directly lowers funding costs, acting as a stealth stimulus.

Risks on the Horizon

Yet, risks lurk. Analysts warn against overexposure to lower-rated fixed-income instruments, where historical data shows heightened risk during rate cycles. They emphasize prioritizing credit quality and diversifying portfolios across short- and long-duration funds. Global factors, such as U.S. Federal Reserve policies and capital flows, could also disrupt India’s recovery.

Conclusion: A New Playbook for Growth

The RBI’s 2025 strategy is a masterclass in hybrid monetary policy. By blending rate cuts with debt purchases, it has engineered a de facto easing cycle that could sustain India’s economic rebound. With GDP growth projected to hit 6.7% and borrowing costs falling, sectors like housing, autos, and tech stand to benefit most. However, investors must remain vigilant: global headwinds and domestic credit risks demand disciplined portfolio management.

As the RBI’s balance sheet expands—now up 15% year-on-year—the message is clear: growth is the priority. For investors, this means a landscape where patience and selective risk-taking could yield outsized rewards.

The RBI’s experiment is rewriting the rules of monetary policy in India. Stay tuned—this is only the beginning.