Sharp cut in PPF, small savings rates rolled back

The finance minister, Nirmala Sitharaman, announced via a tweet, today early morning that the sharp cut in interest rates of small savings schemes announced last night have been rolled back for the first quarter of the new fiscal."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 Orders issued by oversight shall be withdrawn," states the tweet. Interest rates of small savings schemes of GoI shall continue to be at the rates which existed in the last quarter… https://t.co/CKQryM8yUN— Nirmala Sitharaman (@nsitharaman) 1617243845000Late last night the finance ministry had announced that interest rates on small savings schemes have been cut by sharply by between 40 -110 basis points (100 basis points/bps = 1%) for the first quarter of the financial year 2021-22. With the latest cut, interest rates on small savings schemes would have been reduced by a total of 110-250 bps during the current year. After this cut, the interest rate on PPF interest rate would have fallen below 7%, the first time since 1974, a 46 year low. Proposed rates with effect from April 1, which have been rolled backWith effect from April 1, 2021, post office saving schemes would have fetched interest rates as follows: Public Provident Fund (PPF) - 6.4 per cent down from 7.1 per cent earlier, National Savings Certificate (NSC) - 5.9 per cent, down from 6.8 per cent earlier, Sukanya Samriddhi Yojana (SSY) - 6.9 per cent, down from 7.6 per cent earlier. Post office time deposit rates across tenures have been reduced by 0.40- 1.1% and will earn in the range of 4.4- 5.3%.Here is a look at the interest rates on various small savings schemes had the rate cut stayed. The interest rates for the Jan-Mar 2021 will continue. Instrument Interest rate (%) from Jan 1, 2020 Proposed and withdrawn interest rate (%) from April 1 to June 30, 2021 Change in Interest rate (%) Savings deposit 4 3.5 0.5 1 year Time Deposit 5.5 4.4 1.1 2 year Time Deposit 5.5 5.0 0.5 3 year Time Deposit 5.5 5.1 0.4 5 year Time Deposit 6.7 5.8 0.9 5-year Recurring Deposit 5.8 5.3 0.5 5-year Senior Citizen Savings Scheme 7.4 6.5 0.9 5-year Monthly Income Account 6.6 5.7 0.9 5-year National Savings Certificate 6.8 5.9 0.9 Public Provident Fund 7.1 6.4 0.7 Kisan Vikas Patra 6.9 (will mature in 124 months) 6.2 0.7 Sukanya Samriddhi Yojana 7.6 6.9 0.7 Source: Finance ministry circular dated March 31, 2021 The rates have been cut for the quarter because of the fall in the 10-year government securities (G-Sec) yield. The Shyamala Gopinath Committee had suggested that the interest rates of different small saving schemes should be 25-100 bps higher than the yields of the government bonds of similar maturity. Relief for fixed income investorsThe roll back of interest rate is good news for fixed income investors, especially senior citizens who depend on interest income. Bank fixed deposit are earning low interest rates, and these small saving schemes were giving them an investment avenue to park their money that earned decent returns. Further, with the RBI maintaining status quo on rates, banks too have started going slow on FD interest rate cuts.

from Economic Times https://ift.tt/3whGOlR