First time in 48 years, PPF rate could fall below 8%

NEW DELHI : For the first time since the Public Provident Fund was established in 1968, the interest rate on the government-managed saving scheme could fall below 8%. Interest rates on small savings schemes, including the PPF and the Senior Citizens' Saving Scheme, are linked to the government bond yields and are revised every three months. The last interest rate revision on 19 March saw the PPF rate being cut 60 basis points from 8.7% to 8.1%.
Now, given that the average 10-year benchmark bond yield has been nearly 7.5% between March and May, analysts believe the rate for PPF could be cut to 7.75%. "The PPF rate is 25 basis points higher than the 10-year benchmark bond yield. So it could be revised to 7.75% for the next quarter," says Manoj Nagpal, CEO of Outlook Asia Capital. If the PPF rate is indeed cut by 25-35 basis points, this would be the first time that the scheme will give less than 8% in its 48-year history.
However, some experts believe that despite the decline in bond yields, the government will not cut the small savings rate in this quarter. "Given the furore over the rate cut in March, the government may not want to alienate the middle class before the assembly elections in 2017," says a mutual fund manager.




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