The government is expected to press the pause button on resetting interest rates on small savings schemes for the July-October quarter amid protests from individuals who depend on public provident fund and post office deposits to meet their financial needs. The finance ministry is expected to notify the rates this week, sources told TOI.
The government had moved to market-linked rates for small savings products, such as PPF, Kisan Vikas Patras and Senior Citizens Savings Scheme, to link the returns to government bonds so that these instruments did not eat into the bank deposit base. This was also part of the demand from the RBI to help lenders cut rates once deposit rates were lowered. While the Centre earlier reset interest rates annually, it decided to reset them every quarter from April, when rates were pared by more than a percentage point on certain schemes. During the current quarter, the average yield on government securities has come down to around 7.5%, which would have resulted in PPF rates falling to under 8% from 8.1% at present.
The government has, however, opted to keep rates intact at a time when inflation is creeping up due to a spike in the prices of vegetables and pulses, and impacting consumer sentiment. The government does not want a double whammy to hit the middle class.
In addition, a key reason for the government to push for a steep rate cut from April was to create space for banks to reduce deposit and lending rates but banks have opted to maintain status quo, hurting the transmission of lower policy rate to borrowers and depositors.
Source:-The Times of India