The sharp cut follows the Reserve Bank of India’s cut in the repo rate by 75 basis points, alongside a slew of liquidity-enhancing measures to counter the impact of the COVID-19 pandemic. The sharp cut follows the Reserve Bank of India’s cut in the repo rate by 75 basis points, alongside a slew of liquidity-enhancing measures to counter the impact of the COVID-19 pandemic.

In a move that signals the transmission of lower rates that will end up pinching small savers especially amid the looming economic distress, the government has decided to cut small savings interest rates sharply by 70-140 basis points for the April-June quarter. This sharp cut follows the Reserve Bank of India’s cut in the repo rate by 75 basis points, alongside a slew of liquidity-enhancing measures to counter the impact of the COVID-19 pandemic.

The interest rate for Senior Citizens Savings Scheme has been slashed to 7.4 per cent from 8.6 per cent, while that for National Savings Certificate has been cut to 6.8 per cent from 7.9 per cent. Public Provident Fund will now fetch 7.1 per cent interest as against 7.9 per cent earlier. Kisan Vikas Patra will fetch 6.9 per cent interest (maturity in 124 months) from 7.6 per cent (maturity in 113 months) earlier. Interest rate for Sukanya Samriddhi Scheme has been reduced to 7.6 per cent from 8.4 per cent.

This is the first sharp cut in small savings rates after a 10 basis points cut in July-September last year. On the other hand, the RBI has cut repo rate by 210 basis points over the last one year to 4.4 per cent, the lowest in at least 20 years.

To put this in perspective, after the 2008-09 economic crisis, the RBI had cut the key policy rate gradually from 9 per cent in September 2008 to 4.75 per cent in April 2009, and it stayed at the same level till February 2010.

Term deposits of one to three years will now fetch an interest rate of 5.5 per cent from the existing 6.9 per cent, down 1.4 per cent, according to a notification by the finance ministry. As against these small savings instruments, interest rate for subscribers of Employees’ Provident Fund Organisation has been recommended to be at a higher level of 8.5 per cent for 2019-20.

Banks have often cited the high small-savings rates as an impediment to effective rate cut transmission since these prevent them from lowering their own deposit rates. Most public sector banks have passed on the RBI’s recent 75 basis points rate cut.

Since 2016, the government has been revising small savings rates quarterly in a bid to align these with rates of government securities.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.

© The Indian Express (P) Ltd