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India's inverted yield curve fails rupee and slams economy

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The RBI measures though are also taking a toll on the banking sector. Reuters The RBI measures though are also taking a toll on the banking sector. Reuters
SummaryThe RBI measures though are also taking a toll on the banking sector.

to a complete standstill. There are no placements and no trading."

Rates on three-month commercial paper, which businesses use to raise short-term funding, have jumped 400 basis points to around 12.4 percent since mid July. Scarcely any new commercial paper has been issued since July, traders said.

Economists fear India will be forced to slow down for several reasons, not just because businesses are starved of capital. As authorities push for import controls and higher duties to crimp imports and therefore bring the current account deficit down, there would be consequences for the economy.

"We maintain that India's GDP growth is headed for a far steeper decline than the already muted expectations, as the impact of the currency, current account-deficit-related damage has barely started," Jefferies said in a note this week.

If the current account deficit, currently 4.8 percent of GDP, was reduced by 300 basis points, "India's GDP could head to sub 1-to-2 percent growth with massive pain likely for banks," Jefferies said.

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