India’s Real Interest Rate Nears Negative Territory After RBI Hike

The Reserve Bank of India has raised the interest rate it charges banks.

But prices are rising quickly, so the inflation-adjusted interest rate has fallen close to zero.

If prices rise faster than the policy rate, the real interest rate can become negative.

That can make borrowing more attractive, but may discourage people from saving and put pressure on the currency.

The RBI says inflation could be affected by the monsoon, oil prices and other supply problems.

One economist thinks the real rate may briefly turn negative, while further rate increases could push it back above zero.

The rupee also weakened, amid higher oil prices and foreign investors selling Indian shares.