Opinion | The potential impact of covid-19 on the cost of capital up ahead4 min read 12 May 2020, 10:32 PM IST
Studies of the past suggest that real interest rates tend to decline after a pandemic but we must still watch trends closely
The Indian government announced last week that it will need to borrow ₹4.2 trillion more this year than what was budgeted for in February. A sharp decline in tax collections, combined with the need to support the economy through extra spending, made such additional borrowing inevitable. The bond markets reacted as expected on the first day of trading after the fiscal announcement. The yield on benchmark bonds climbed by 22 basis points, the largest single-day rise in more than three years. Is this an advance warning of higher interest rates in the coming years, in response to a growing fiscal burden?
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