The government has decided to leave the interest rate on small savings instruments unchanged for the October-December quarter, the sixth quarter in a row that the existing rates on instruments such as the Public Provident Fund and National Savings Certificates have been retained.
The government resets the interest rate on small savings instruments every quarter. Earlier this year, the Finance Ministry had announced rate cuts ranging from 0.4% to 1.1% on such instruments for the April-June quarter but reversed it within hours, citing an ‘oversight.’
On Thursday, the Department of Economic Affairs in the Ministry said in an office memo that the rate of interest on various small savings schemes for the third quarter of financial year 2021-22 starting October 1, ‘shall remain unchanged from the current rates applicable for the second quarter.’
Economists said that the status quo on small savings rates was expected, considering there was little change in the average overall yields on government securities in recent months. Moreover, higher inflows into small savings could nudge the government to borrow more than it had originally budgeted for the year from this pool of funds.
The last cut in small savings rates had been effected in the April-June 2020 quarter, when rates were slashed between 0.5% and 1.4% on different instruments, bringing the Public Provident Fund (PPF) returns down to 7.1% from 7.9%.
For now, the quarterly interest rate paid on one year term deposits remains at 5.5%, Senior Citizen Savings’ Scheme will continue to earn 7.4% while the Sukanya Samriddhi Account Scheme’s return is 7.6%.
“The provisional data released by the Controller General of Accounts indicates that inflows into savings deposits and certificates, and PPF, rose by 19% to ₹1.1 lakh crore between April and August compared to ₹90,000 crore in the same period last year,” said Aditi Nayar, chief economist at ICRA.
“We expect continued inflow of funds into small saving schemes in the coming months, with the advantage of higher spreads over banks’ lending and deposit rates. In our view, borrowings from the National Small Savings Fund could end up being modestly higher than the net budgeted amount of ₹3.9 lakh crore,” she reckoned.
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