The government on Thursday opted to leave interest rates on small savings instruments like the Public Provident Fund unchanged for April to June 2022, maintaining the status quo for the eighth successive quarter.
The Reserve Bank of India had indicated the need to pare interest rates on these schemes between 0.09 and 1.18 percent points in the coming quarter. However, the resurgence of inflation beyond 6% in the last two months and the upswing in oil prices may have weighed against taking an unpopular step, especially after the Employees’ Provident Fund rate for 2021-22 was reduced from 8.5% to 8.1% earlier this month, the lowest in over 42 years.
The rates on various small savings schemes were last reduced in the range of 0.5 and 1.4 percent points in April 2020, and an announcement of further cuts ranging from 0.4% to 1.1% on March 31, 2022, was revoked by April 1.
The quarterly interest rate paid on one year term deposits remains 5.5%, Senior Citizen Savings’ Scheme will continue to earn 7.4%, while the Sukanya Samriddhi Account Scheme’s return is 7.6%. The PPF return will remain at 7.1%.
ICRA chief economist Aditi Nayar said small savings rates may be increased in the latter half of the year following the expected rate hikes by the central bank through August and October.
“With the rise in yields on government securities over the last three months, as well as the inching up of deposit rates of banks, we had foreseen a small probability of the small savings rates being revised upwards for the coming quarter,” she noted.