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PPF, Sukanya Samriddhi, small savings schemes set for interest rate cut today

30-Sep-2019
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The government is likely to announce today interest rates of small savings schemes like PPF (Public Provident Fund), Sukanya Samriddhi account, and Senior Citizens Savings Scheme for the October to December quarter. And in most likelihood, there could be a downward revision due to a general decline in interest rates. The interest rate of small savings schemes, including that of PPF, and girl child savings scheme Sukanya Samriddhi account, are revised every quarter, depending on government bond yields.

Earlier, for the July-September quarter, the government had lowered interest rates of PPF and other small savings schemes by 10 basis points.

Banks have been lowering their fixed deposit interest rates, with overall interest rates on a downward trajectory.

For the current quarter July-September quarter, PPF and National Savings Certificate (NSC) are yielding 7.9% annual interest while KVP 7.6%. The girl child savings scheme Sukanya Samriddhi account is fetching 8.4% while the five-year Senior Citizens Savings Scheme 8.6%.

However, analysts don’t expect a big cut in small savings rate given the sensitivities involved in small saving schemes. Sukanya Samriddhi and Senior Citizen Savings schemes are expected to fetch higher returns than other small savings schemes given the social objectives of the scheme.

The RBI will announce its monetary policy decision on Friday and is widely expected to reduce its benchmark repo rate further. So far this year, the RBI has cut its repo rate by 110 basis points.

Some analysts have said that higher small savings rates have impeded transmission of RBI rate cuts to borrowers. In a note Edelweiss said: "We believe that credit rate can not fall because small savings are hindering deposit rates from falling is a shallow argument. Despite the recent spike, small savings are still too small( at 8% of total bank term deposits) to impact the rates."

Source : Live Mint

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