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Interest Rate On Small Savings Schemes To Be Cut For April-June 2020
Small savings schemes are likely to see an interest rate cut for the quarter April-June 2020. Based on the yield on 10-year government bonds, the government revises interest rate on schemes including Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizen Saving Scheme (SCSS), Sukanya Samriddhi Yojana (SSY) among others.
For the current quarter, interest rate were left unchanged.
| Small Savings Scheme | Interest rate per annum |
|---|---|
| PPF | 7.9% |
| NSC | 7.9% |
| KVP | 7.6% |
| SCSS or Senior citizen savings scheme | 8.6% |
| Post office savings account | 4% |
| Term deposit | 6.9-7.7% |
| 5-years RD | 7.2% |
| SSY | 8.4% |
And this time the chances of a rate cut are likely higher given the current crisis at hand:
1. Govt. may lower key rate further to push growth which has been now hit by coronavirus outbreak:
Just when the Indian economy was showing some recovery in some of the sectors, the country has to bear the brunt of coronavirus outbreak. And to restore the economic health of the country, some of the analyst expect a cut in key rates by the RBI even before April's RBI MPC.
2. Wide spread between key rates and interest rate on small savings scheme has to be reduced:
While, the govt. has been nudging passing on the rate cut to end consumers as lower loan rate. The same in case of deposits has been not been transmitted aggressively as else there could be flight to lucrative avenues including small savings schemes. Nonetheless, the gap has to be reduced between key policy rate and interest rate on small savings schemes.
3. Low Inflation Levels as well as Global Central Banks May push RBI To Cuts Lower:
Giving in to the panic situation gripping the markets, the US central bank on March 3 cut interest by 50 bps in the range of 1-1.25%. And thereafter, Bank of England today cut interest rate by 50 bps to 0.25%. This could pressurize RBI to also cut rate.
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