Real interest rate dynamics: Who can help?

Availability and cost of funds are both key drivers of economic growth. The role of India’s financial sector in achieving the $5 trillion economy target is therefore critical. While financial entities will do their share of work, it’s important to understand the constraints they face in lowering the cost of funds.

Economists focus on the real rate of interest to guage the impact on growth. The cost of money has to be set off against its purchasing power. While savers prefer a higher real interest rate, borrowers want this to be low. The trick is to find the optimal real