Small savings rate cut looms

A cut in the rate of interest on offer under the post-office small savings schemes appears more and more likely as the Budget approaches.

The Economic Advisory Council to the Prime Minister has asked for a sharp cut in the interest rate on small savings, provident fund and public provident fund. The Council in its report made the following points:

*The administered interest rates effectively put a floor on the interest rate structure even when inflation falls.

*Persisting with relatively high rates of 11 per cent on these schemes has prevented banks from lowering term deposit rates.

*This has led to a higher than necessary interest cost structure for the government and the private sector.

*Interest rates on the small savings option should be lowered to not more than 2 percentage points over the inflation rate of the preceding six months.

*Unless interest rates on small savings are cut, a major cut in lending rates cannot be made. -- BL Research Bureau