IMF says India's real interest rates will fall 150 bps between 2020 and 2030

3. International Monetary Fund | At 2,814 tonnes gold in its reserves, the IMF is on the third spot.

Real interest rates in India may drop by more than 150 basis points over the next decade, the International Monetary Fund has said in a report.

A decline in the India's dependent youth (those from ages 0-15 years) between 2020 and 2030 is expected to result in a reduction of long-term interest rates in the country.

The working paper, titled "Demographics and Interest Rates in Asia", stated that there are three key factors that affect domestic interest rates --  the degree of openness in an economy, the state of ageing, and the rate of ageing of the country's population.

The report noted that due to the relatively closed nature of India's economy, its interest rates will be affected by the nation's population demographic. Domestic interest rates of relatively-open economies, by contrast, are more dependent on global savings and investment.

The IMF stated that when the population of dependent youth rises, the demand for investment may increase, while savings could decline. This scenario usually results in a rise in domestic interest rates.

As the population distribution shifts toward the middle age, savings rise and demand for investment declines, thereby pushing interest rates down. India is expected to witness this trend between 2020 and 2030.

Finally, when the population of elderly dependents (ages 65 and above) increases, savings fall and surpass the decline in investment demand, resulting in a rise in interest rates. This was the case with South Korea and Taiwan.

The IMF cautioned that such demographic trends that push interest rates down impact the ability of central banks to attain price stability, by limiting their scope of exercising monetary policy.