NEW DELHI:
The Finance Ministry on Friday left interest rates unchanged on all small savings instruments, except five-year recurring deposits, which will yield 6.7% in the October-December quarter from the current 6.5%.
The status quo on interest rates comes days before the monetary policy committee meets amid signs of cooling inflation, which had risen to 7.4% in July but remains above the 6% tolerance level. The Monetary Policy Committee is expected to leave key policy rates unchanged again.
The government announces the interest on small savings schemes every quarter. The rates must be aligned with the applicable market rates, based on a formula, but deviations from this are not unusual.
Higher interest rates on small savings schemes such as public provident fund and Kisan Vikas Patraswould force banks to raise deposit rates at a time when credit growth remains high.
This would in turn put pressure on interest rates, something the government may not be keen on as it seeks to stimulate demand while also pushing the private sector to increase capital expenditure to create new production capacity or expand existing factories. . In a note, Healthcare Assessments said that interest rates on bank deposits do not yet fully reflect the increased interest rates.