Centre withdraws interest rate cut on small savings schemes

at 1:19 pm
Small Savings schemes
Finance Minister Nirmala Sitharaman

New Delhi (NVI): The Central government today withdrew its interest rate cut order on small savings schemes like Public Provident Fund (PPF) and the National Savings Certificate (NSC). The interest rates of these scheme will continue to be at the rates which existed in the January-March quarter.

Union Finance Minister Nirmala Sitharaman announced this today and tweeted that the “orders issued by oversight shall be withdrawn”.

“Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter of 2020-2021, ie, rates that prevailed as of March 2021. Orders issued by oversight shall be withdrawn,” Sitharaman tweeted.

The Centre had yesterday decided to cut interest rates on multiple small savings schemes sharply by 40-110 basis points. These revised rates were to remain in effect till June 30.

Small saving rates are linked to yields on benchmark government bonds, which have fallen over the last one year as the Reserve Bank of India cut rates to support the economy.

In a circular, the Finance Ministry had said the interest rate on savings deposits has been cut to 3.5 per cent from 4 per cent for the first quarter of 2021-22 while the rates on time deposits were also slashed significantly.

The Public Provident Fund (PPF) was to fetch a rate of 6.4 per cent, down from 7.1 per cent earlier. National Savings Certificate (NSC) was to yield 5.9 per cent, down from 6.8 per cent earlier while rates on the girl child savings scheme Sukanya Samriddhi Yojana would fall to 6.9 per cent from 7.6 per cent earlier.

One-year time deposit rates had seen the steepest cut of 110 basis points to 4.4 per cent from 5.5 per cent. The rates on two, three and five-year time deposits had also been reduced by 40-90 basis points.

The circular came at a time when inflation was inching up.

According to the retail inflation data released by the government, the headline number rising to a three-month high of 5.03 per cent in February from a 16-month low of 4.06 per cent in January.

Interest rates on small savings schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity.

For the April-June quarter in 2020, the finance ministry had cut interest rates on small savings schemes by up to 140 basis points. This had been kept steady for the last three quarters.