Statsguru: Interest rate risks for the Indian economy explained in charts

The Reserve Bank of India (RBI) has reduced policy rates by 135 basis points in 2019 to support the slowing Indian economy. However, lower rates did not lift up the economy as desired. The Indian economy is expected to expand by 7.5 per cent in nominal terms and lower nominal growth can make debt servicing difficult for the government and private borrowers.

As the RBI reduced policy rates, yields on Treasury Bills (short-term government borrowing) dropped at a faster pace (Chart 1), indicating better transmission of policy rate into real economy rates. However, the bulk of government borrowing is for