Home Interest rate Why didn’t PPF and SSY interest rates rise in Q3 amid the uptrend in repo rates?

Why didn’t PPF and SSY interest rates rise in Q3 amid the uptrend in repo rates?


Amid the rise in repo rates, the government raised interest rates by up to 30 basis points on a few small savings schemes for the third quarter (October to December) of the current fiscal year or FY23. 2- and 3-year Term Deposits, Old Age Savings Scheme (SCSS), Kisan Vikas Patra (KVP), Postal Monthly Income Account, etc. have seen increased interest rates. interest. Despite bond yields already being strong over the past 6 months and the fourth repo rate hike in five months, there has been no change in interest rates for the Sukanya Samriddhi Yojana (SSY) , the Public Provident Fund (PPF) and the National Fund. Savings Certificate (NSC) at T3FY23.

The benchmark 10-year yield on government bonds, commonly referred to as government securities or G-secs, is used to calculate interest rates on small savings schemes. And on a quarterly basis, the government assesses these interest rates in light of the average g-sec yields of the previous three months. On the other hand, in order to control inflation, the Reserve Bank of India (RBI) chose to raise the repo rate again, this time from 0.5% to 5.9%, during its monetary policy meeting on 30 september. This is the fourth increase in the repo rate in five months in a sequence of increases that started on May 4 this year and now stands at a total increase of 1.9%. With repo rates rising and bond yields strong, it’s important to understand why PPF and SSY interest rates haven’t risen.

Mr. Shravan Shetty, Managing Director of Primus Partners, said: “The PPF and SSY rates are linked to long-term trends, while the repo rate is at the lower end of the debt range and both are not not related. Normally, the repo rate would have changed less, but due to the pandemic and the inflationary cycle, we are seeing more changes in the repo rate to curb inflation. Today, the repo rate stands at 5.9% after the recent rise and has just reached the pre-pandemic level. PPF rates did not reflect the repo rate when it went down, so it does not need to reflect when the repo rate is up. Considering inflation, PPF and SSY rates should be raised for long-term investment to avoid value destruction so that returns are better. Traditionally, inflation should be at 4% and interest rates at 7%, so there is a marked difference. The repo rate should not drive the PPF and SSY, the decision to raise rates should be tied to the expectation of inflation above 4% as required by the RBI. Therefore, PPF rates are expected to rise since long-term inflation is expected to be above 4% for some time.”

Since the January to March quarter of 2019, small savings rates have not increased so far. In Q3FY23, the interest rate for the savings scheme for the elderly was increased from 7.4% to 7.6%, for Kisan Vikas Patra from 6.9% to 7% and for the monthly income from 6.6% to 6.7%. The government announced interest rate increases on 2-year time deposits at Swiss Post by 20 basis points, from 5.5% to 5.7%, and on 3-year time deposits at Swiss Post 30 basis points, from 5.5% to 5.8%.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

Catch all the trade news, market news, breaking news and latest updates on Live Mint. Download the Mint News app to get daily market updates.

More less

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.