Press Information Bureau

Government of India

Ministry of Finance

04-May-2012 17:06 IST

Widening Interest Rates in India and United States

The difference in interest rate prevailing in India and the US has widened in the last three years. The difference between the ten year yields of Government securities in India and US has increased from 3.2 percentage points on 4.5.2009 to 6.7 percentage points on 2.5.2012. The interest rate in an economy is influenced by a large number of factors including policy rates set by the Central Bank. US policy rates have remained at 0 - 0.25 per cent in view of the slow pace of recovery and in India policy rates were raised to control inflationary pressures.

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in the Lok Sabha today.

SS/SL

Interest rate divergence: contrasting monetary policies widened sovereign yield spreads, affecting borrowing costs and capital flows. Divergence in sovereign yield levels between India and the United States widened over the referenced three year period because the US maintained near zero policy rates to support recovery, while India raised policy rates to restrain inflationary pressures, affecting the yield spread and relative cost of government borrowing.