- Date : 02/01/2023
- Read: 2 mins
Government increases interest rates on small savings schemes from January to March
The government has increased interest rates on a few small savings schemes by around 20 to 110 bps from January to March. It raised interest rates by 30 basis points (up to) from October to December and did not change consecutively for nine quarters. The government sets the small savings interest rates linked to government securities' market yield at 0-100 basis points spread over these securities' yields of comparable maturities. However, the market rates have not always been the tracking factor behind small savings interest rates.
Read: Effect of RBI's decision on bond yields.
Raise in Rates
The 20 to 110 bps rates increase by the finance ministry is a second quarterly increase consecutively. There is a 20 to 110 bps increase in the rates between various instruments. The rates are now in the range of 4% to 7.6%. The economy's interest rates have sharply increased as the central bank continues its increments. It has increased the key policy rate by 225 basis points to contain inflation since April. Banks have followed them and have raised deposit and lending rates for their customers.
New Rates
What does the RBI Monetary Policy Report Say?
In a Monetary Policy Report recently released on September 30, the RBI (Reserve Bank of India) noted that the government bond yields are moving upwards, and the revised rates for small savings were below the implied rates by 44 to 77 basis points. September to November is a small savings rate reference period for January to March. The five-year yield on govt. bonds increase by 15 basis points. The 10-year yields rose by ten basis points in the same timeframe. The RBI has repeatedly asked the government to follow the formula-based way to set small savings interest rates.
Read: These are the new small savings schemes' interest rates
The RBI warned in the Monetary Policy Report of October 2021 that small savings schemes' bank deposits and interest differential had grown since 2018. The RBI said that this would have monetary transmission implications.
