Interest Rates Current Affairs - 2020

GoI: Interest Rates on Small Savings Schemes lowered

On March 31, 2020, the Government of India lowered interest rates of several small savings scheme facing Economic challenges created by the threat of COVID-19 virus.

Highlights

The interest rates of the schemes like Sukanya Samriddhi, Kisan Vikas Patra and Pubilc Provident Funds were reduced. The changes were introduced for Q1 of the fiscal year 2020-21. They are as follows

Sukanya Samriddhi

Rate of interest for Sukanya Samriddhi Account Scheme has been reduced from 8.4 to 7.6%. The scheme targets girl child and her parents. It encourages the parents to build fund for future education and marriage expenses of their girl child.

Public Provident Fund

Interest rate for Public Provident Fund reduced from 7.9 to 7.1%. It is savings-cum-tax saving scheme introduced in 1968 by the National Savings Institute operating under Ministry of Finance. The main aim of the scheme is to increase small savings offering returns based on the investments made with the savings deposited.

National Savings Certificate

Interest rate for National Savings Certificate 7.9 to 6.8%. It is a part of the postal savings system. It is a savings bond scheme launched for income tax savings and small savings.

Kisan Vikas Patra

Interest rate for Kisan Vikas Patra reduced from 7.6% to 6.9%. The KVP will mature in 124 months instead of 113 months earlier. It is a saving certificate scheme that was launched by India Post in 1988.

Other Schemes

  • Rate of interest for the Senior Citizen Savings Scheme reduced to 7.4 from 8.6%
  • Rate of interest for the monthly income scheme lowered to 6.6% from 7.6%
  • For five-year recurring deposit, the interest has been reduced from 7.2 to 5.8%.
  • For five-year time-deposit, it has been brought down from 7.7% to 6.7%
  • For three-years, two-years and one-year time deposits, the interest rate has been cut from 6.9 to 5.5%
  • Interest on savings deposit stays unchanged at 4%.

Retail Inflation at 5-year high of 7.35% in December, 2019

According to the data released by Ministry of Statistics and Programme Implementation on January 13, 2020, the food inflation increased to 14.12% in December 2019 as compared to 10.01% in November 2019. The CPI (consumer Price Index) rose to 7.35% as compared to 5.54% the previous month. The inflation was increase was mainly due to vegetables

Highlights

In December 2018, the food inflation was -2.65%. Vegetable inflation in urban areas touched 75% and at the country sides it was at 53%. Onion inflation doubled as compared to the previous month. It was 128% in November and it increased to 328% in December.

Analysis

The soaring crude oil prices due to the increasing tensions between Iran and US is the major reason. In the coming Budget, GoI is expected to increase its spending largely on infrastructure and cut taxes. This might stoke inflation further.

RBI

For the first time, the inflation has breached RBI’s target inflation of 4% (±2%). Predicting the situation, RBI had kept its policy interest rates on hold in its policy review of December 2019.

Implications

As inflation increases, the following can be expected

  • Increase in interest rates that will increase cost of borrowing
  • Slow-down in investment and economic growth