Negative real interest rate no cause for concern, say economists

The RBI is expected to reduce its policy rate to 4.5% in this rate cycle, economists say

The real interest rate in the economy has turned negative, with the consumer price index (CPI)-based inflation at a more-than-three-year high of 5.54 per cent and the policy repo rate at 5.15 per cent. If this persists, it would be a disincentive for saving, at a time when the interest rate for savings itself is on a decline.

However, this doesn’t indicate a reason to despair as yet. The rise in CPI inflation is primarily on account of food prices, particularly onion, which recently surged to Rs 200 per kilogram, from the usual Rs 20-30 a kg.

With fresh crops