India is Asia's third-best performing equity market.
India's banks rely on overnight borrowings to fund longer-term lending.
Only three of India's 45 commercial banks have cut base lending rates since the Reserve Bank of India's surprise easing this month, hurting the government's drive to lift business investment.
Infrastructure bonds were launched by the RBI last year in a bid to help the government fulfill its plan to provide affordable housing to all by 2022
In cutting interest rates and giving a boost to the government's efforts to revive growth, RBI governor Raghuram Rajan displayed the pragmatism and flexibility familiar to those who work with him.
Indian bond yields may not spike if the government opts to increase spending when it unveils its annual budget in late February.
Earlier, India said the headline annual consumer price inflation accelerated to 5 per cent, compared with a 4.4 per cent print in November.
India's bond markets have rallied since last year on expectations the Reserve Bank of India will start cutting interest rates as early as February due to sharply easing inflation.
Dealers also expect RBI to try to prevent excessive strength in the rupee in a bid to help exporters remain competitive
The rupee had weakened by 23 paise to end at 63.51 against the American currency on Wednesday on month-end dollar demand from oil companies and persisting selling by foreign funds in stocks.
The rupee had gained five paise to close at 63.25 against the dollar in on Monday's trade on fresh selling of the US currency by exporters amid bullish stocks.
The rupee has posted its biggest single-day fall in more than four months to end at 62.95 against the dollar.
The RBI expects inflation in 2015 to hover around 6 per cent -- its target for January 2016 -- and sees risks to the target evenly balanced.
Rupee ends at 61.89 against the dollar, falls for second straight day.
The rupee had rebounded 15 paise to close at two-week high of 61.77 against the dollar at the Interbank Foreign Exchange on Friday.
The central bank will come out with two measures on restructuring to tackle financial stress, Rajan said.
Indian companies are keenly waiting for reforms on rules related to land acquisition, labour, coal and power sector, and foreign direct investment in insurance sector.
The policymaker said the RBI had not reached the point where specific actions were under consideration.
The rupee had edged higher by four paise to end at 61.51 against the American currency in yesterday's trade on fresh selling of dollars by banks and exporters.