The government has decided to leave the interest rates on small savings instruments for the upcoming July-September quarter unchanged, the Finance Ministry said in a memo.
For the April-June quarter, the government initially announced rate cuts on small savings instruments, ranging from 0.4% to 1.1%, but reversed it within hours, citing an oversight . The West Bengal Assembly election campaign had been underway at the time.
The government resets the interest rate on small savings instruments every quarter but economists had said it would be difficult to reduce the rates as inflation was running high, hitting 6.3% in May after averaging 6.2% throughout 2020-21. Household savings had also been falling sharply, as per recent RBI data. recent Reserve Bank of India data.
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Small savings rates had been last slashed in the range of 0.5% and 1.4% on different instruments in April 2020, bringing the PPF rate to 7.1% from 7.9% prevalent till March 31, 2020.
“The rate of interest on various Small Savings Schemes for the second quarter of financial year 2021-22 starting from July 1st, 2021, and ending on September 30th, 2021, shall remain unchanged from the current rates applicable for the first quarter,” the Budget division of the Department of Economic Affairs in the Ministry of Finance said in the memo.
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CARE Ratings chief economist Madan Sabnavis told The Hindu earlier this week that the government is unlikely to cut rates as it will be a very unpopular move due to the rising inflation and declining savings rate.
The sharpest cut proposed in the last quarter was in the quarterly interest rate paid on one year term deposits, from 5.5% to 4.4%. The rate of return on the Senior Citizen Savings’ Scheme was proposed to be cut from 7.4% to 6.5%, while the Sukanya Samriddhi Account Scheme’s return was to be reduced from 7.6% to 6.9%. PPF rates were to be reduced to 6.4% before the government decided to revert to the status quo.