Should RBI cut interest rates on Apr 5th

Reduction of interest rates will encourage investment and hence this will lead to consumption.
Reduction of savings income at household level may not lead to fall in consumption level. I personally not think savings income is a significant source of income for households

The interest on small savings scheme is directly paid by the govt. hence any reduction in their rates will help govt. save on interest payments.

 

So why has the government reduced it only now? It just woke up to this compulsion is it or acted randomly or has decided it must push it's anti middleclass agenda harder?

Btw is there any basis of fixing interest rates on such schemes or is that too random basIs?

 

Reducing interest rates is not anti middle class agenda. Interest rates on small savings schemes are usually set around bank fixed deposit rates (give or take a few points depending on the scheme). Since banks have reduced interest rates on their deposits following RBI's repo rate cut (which was based on reducing inflation and to increase growth) the gap between bank deposit rates and savings schemes had widened. it was prudent time for the government to cut interest rates and align them more closely to bank FD rates and save on its own interest cost. This is a good move because most of the benefits of the schemes were being enjoyed by people who have access to other financial instruments than smaller savers.

 

Ever obliged for this very illuminating and as always fact based post. I stand corrected for Until now i was under the impression that ever since these schemes became market linked, the rate of interest on small savings schemes were aligned with G-Sec rates of similar maturity with a spread of 25 basis points (bps), with two exceptions.

Must hail the muscle of power of commercial banks in being able to set the direction of interest rates on small saving schemes owned by the govt - the govt was indeed forced to align these rates to those set by commercial banks on their fixed deposits. Or maybe it pounced on the opportunity offered by the banks to reduce its interest burden.

Thought it would be worthwhile ( for some others who may be interested) to paste the two links below though.

https://m.rbi.org.in//scripts/NotificationUser.aspx?Id=6951&Mode=0

https://pib.nic.in/newsite/PrintRelease.aspx?relid=138169


Please do continue with your well researched posts.

Cheers