Small savings rate cut by 50 basis points

The Union Budget 2002 has cut rates on administered savings. The administered interest rates will now be benchmarked to the average annual yields of government securities of equivalent maturities in the secondary market. As a result, most administered rates are being reduced by 50 basis points from 1 March 2002.

The rate cut of 50 basis points has been as against the expectation of 100 basis points. The Economic Survey 2001-2002 had stated that the cut in interest rates on small savings had become essential to align them with the overall interest rates in the economy.

High yields on small savings have been cited as one of the reasons leading to high interest rates in the economy. The higher yields compared to the zero risk in these instruments lured investors away from other non government borrowers leading the latter to offer high lending rates. Lowering the interest rates on small savings is the key to reviving sluggish economic growth.

In his last budget finance minister Yashwant Sinha had cut the interest rates on administered savings by 150 basis points.

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