What was hinted earlier at frequently could not take place regarding making changes in the interest rate of the small savings schemes? Neither the prevailing rate lowered nor increased for the second quarter. So there arises no discussion upon its further effects. The lowering of interest rates expedite economic growth and lower financing costs can encourage borrowing and investing.
However, when rates are too low, they can spur excessive growth and subsequent inflation, reducing purchasing power and undermining the sustainability of the economic expansion. The last revision in small savings rates was for April-June 2020.
In case there is decided to raise the interest rates on small savings in a strong market to balance or stabilise borrowing and spending, which makes credit more expensive but gives savings accounts an added edge. Banks often increase savings yields in a strong market, giving you a more lucrative place to save up your money, the financial experts insist.
The finance ministry has ultimately decided to retain the standing interest rate on small savings schemes for the July-September quarter. The scheme will continue to fetch small investors better rates than other fixed income avenues such as bank fixed deposits. The reason behind this decision may have been aimed at containing the irritating inflation at this period.
The Indian Express writes: The decision to keep small savings rates unchanged comes amidst creeping inflation. The latest retail inflation data released by the government showed the headline number rising to a six-month high of 6.30% in May from 4.23% in April. With this, retail inflation has breached the inflation target of 4+/-2 per cent set by the RBI.