Mounting govt debt and AI capex: what higher interest rates mean for India

This, too, has implications for countries like India. Take the ‘yen carry trade’, a system where investors borrowed low-interest Japanese yen to invest in higher-yielding global assets for decades. This strategy is now fast fading. With Japanese interest rates now at historically high levels, the flow of global capital into emerging markets like India that offer higher interest rates could be hit. In 2024, when the Bank of Japan raised interest rates above zero for the first time in years, global markets plunged. The current interest rate, after a series of hikes, now stands at 1.25%—the highest level since 1995.