The interest rate on small saving schemes including PPF, NSC etc. are determined every quarter by the government based on the benchmark 10-year bond yield. But this time, even as the bond yields spiked to historical levels of over 8%, the centre has kept the rates unchanged for the July-September quarter.
As per the ministry of finance release, "The rates of interest on various small savings schemes for the second quarter of the financial year 2018-19 starting 1st July, 2018, and ending on 30th September, 2018 shall remain unchanged from those notified for the first quarter of financial year 2018-19".
In most cases, the interest rate is linked to the government bond of similar maturities like in the case of KVP, SCSS, NSC and PPF. Over and above this rate a minor mark-up value is added to average government bond yield of the previous quarter.
But according to some of the analyst, the formula for deciding interest rates for small saving schemes in implementation since FY 2016 and recommended by the Shyamala Gopinath committee is not followed strictly.
Recently, bond yield has been rising due to crude oil prices, depreciating rupee and inflation and other macro economic concerns.