Interest rates likely to be hiked for small savings schemes in next quarter

Investors in small savings schemes could get a boost in the next quarter with government bond yields having risen consistently over the past nine months. That’s led to expectations of interest rates being hiked for the quarter starting April 1. The 10-year bond yield has averaged 7.5% since January 1, which suggests that interest rates offered by Public Provident Fund (PPF) and other schemes may be hiked by 15-20 basis points (bps). A basis point is 0.01 percentage point.

According to the formula recommended by the Shyamala Gopinath committee on small savings, the PPF rate should be 25 bps higher at 7.75%. The Senior Citizen’s Saving Scheme, which was spared a cut when rates were reduced in December, could see the rate go up 20 bps to 8.5%. The Sukanya Samriddhi Yojana rate could be hiked 15 bps to 8.25%.

The Gopinath panel had in 2011 suggested that small savings rates be linked to bond yields. The interest rates of the different schemes should be 25-100 bps higher than yields of government bonds of similar maturity, it said. The panel had suggested an annual revision but two years ago the government decided to recalibrate rates every three months. It also removed the 25-bps markup for instruments competing with bank deposits, including term deposits, recurring deposits and the Kisan Vikas Patra.

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