Are interest rates in India among the highest in the world?

Moneycontrol Bureau

Even as markets go into an overdrive speculating about who the next Reserve Bank of India Governor will be, a frequent criticism levelled at outgoing chief Raghuram Rajan was that the inflation-combating economist kept interest rates too high, to the detriment of the economy.

Some analysts have even gone so far as to say that interest rates in India are among the highest in the world.Rajan's principle in keeping interest rates high flowed from the country facing persistently high inflation. In fact, emerging economies generally tend to have high inflation -- and therefore interest rates -- due to high demand and structural issues on the supply side.

But while Indian interest rates -- measured here by the benchmark repo rate -- are moderately high, they are nowhere among the highest.

Data from Trading Economics suggests that among the 36 countries in the world with gross domestic product of at least USD 250 billion, India ranks 11th. If all 185 countries for which data is available are taken into account, India ranks in the 59th place.

It must, however, be noted that among the high GDP countries that have interest rates, many are facing macro problems either on the inflation, currency or debt front. While serial defaulter Argentina has the highest interest rate in the world, economies such as Venezeula and Iran face problems on the external trade front.

Nigeria and Egypt have gone through currency problems while Russia and Turkey face geopolitical troubles. Fellow BRICS economies Brazil and South Africa too have battled the problem of high inflation.It is obvious that the average interest rates on consumer loans are higher than the benchmark rates because of risk premia and banks' spread.

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