Families may get some relief this week as economists expect the government to hike interest rates paid on small savings schemes for the July-September 2022 quarter, after yields on government securities hit a four-year high earlier this month. Will reach 7.6%.
The interest rate on instruments like Public Provident Fund (PPF) and National Savings Certificate (NSC), currently at 7.1% and 6.8% respectively, has not changed for eight quarters since the first quarter cut. of 2020-21.
Retail inflation too had crossed 7% in April and May, squeezing the household budget. Raising rates on small savings may help the government reduce its dependence on market borrowings this year.
“The small savings rate is likely to increase in the upcoming July-September review in line with the higher policy repo rate,” said Rajni Sinha, chief economist, CARE Ratings. 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 an increase of at least 100 bps in FY13. This means that the return on government securities (G-secs) will continue to rise in the next few months,” Ms. Sinha said. One basis point is equal to 0.01%.
Rating agency ICRA chief economist Aditi Nair said she also expects interest rates on small savings instruments (SSIs) to rise, given the sharp rise in G-Sec yields of various maturities to which such rates are linked.
“In view of the increase in G-Sec yield in recent months, the excess of announced interest rates on SSI over the respective formula-based rates reduced by 9-118 bps from 42-168 bps for Q1: 2022-23. Q4 2021-22,” RBI had noted in April.
The average G-Sec yield, based on which the 15-year PPF is pegged at quarterly rate, stood at 6.76% between December 2021 and February 2022, resulting in a formula-based rate of 7.01% for the April-June quarter. The 7.1% rate for the quarter was thus nine bps higher than the formula at the time.
“The average month-end G-Sec yields for one-year, two-year and five-year bonds between March and May 2022 have increased from 3.88%, 4.72% to 5.26%, 5.65% and 6.79%, respectively. and 6%, respectively, in the last three months,” Ms Nair said. The yield on 10-year government securities stood at 7.44% on June 24.
“A hike in SSI rates could lead to higher inflows and limit the need for additional dated market borrowing to absorb any potential overshooting of the Indian government’s fiscal deficit, and also reduce bond market panic. While the cap helps the G-Sec yield, he added that the 10-year Government-Sec yield could rise to 7.75%-8% in the coming quarter.