‘Small savings rates likely to be raised’

Economists cite rising G-sec yields to which savings rates are tied

Households could get some relief this week as economists expect the government to raise the interest rates paid on small savings schemes for the July to September 2022 quarter, with the yields on government securities hitting a four-year high of 7.6% earlier this month.

The rates of interest on instruments such as the Public Provident Fund (PPF) and the National Savings Certificate (NSC), currently at 7.1% and 6.8%, respectively, have not been changed for eight quarters since a reduction was effected in the first quarter of 2020-21.

Retail inflation too had hovered above 7% in April and May, squeezing household budgets. Raising rates on small savings could also help the government reduce its reliance on market borrowings this year.

“There are chances of small savings rate being increased in upcoming review for July-September, in line with the higher policy repo rate,” CARE Ratings chief economist Rajani Sinha told  The Hindu, noting that banks had also started revising deposit rates upwards. The government will announce the rates for the next quarter on June 30. 

“While the Reserve Bank of India (RBI) has hiked the policy interest rate by 90 basis points (bps) in the last two meetings, we expect further increase of at least 100 bps increase in FY23. This implies that yields on government securities (G-Secs) will continue to increase in the next few months,” Ms. Sinha said. One basis point is equal to 0.01%.

Aditi Nayar, chief economist at rating agency ICRA, said she too expected interest rates on small savings instruments (SSIs) to be increased, given the sharp rise in the G-Sec yields of various maturities, to which such rates are linked.

“In view of the increase in the G-Sec yields in recent months, the excess of the announced interest rates on SSIs over the respective formula-based rates moderated to 9-118 bps for Q1: 2022-23 from 42-168 bps in Q4 2021-22,” the RBI had noted in April.