Over the past 1 year, small savings rates have come down. Many banks have also lowered their deposit rates. This has had an impact on households that rely on these, either for regular income or for long-term savings.
The Public Provident Fund (PPF) was at 8.7% in FY15. Currently, it is at 7.6%. Similarly, State Bank of India’s 1-year fixed deposit rate was 8% in 2015. It is now 6.25%. Ever wondered why this happens? Here are some factors that impact the rate at which your savings grow each year.
RBI’s repo rate
Repo is a transaction where the Reserve Bank of India (RBI) buys back or repurchases (hence, repo) securities lent to banks at a fixed price. The price for each security is affected by the repo rate. The transaction is relevant for banks when they need funds from the RBI. This is like the central bank lending money to banks at the pre-determined repo rate. As most monetary transactions in an organised economy get routed through banks, a change in the repo rate eventually impacts all saving and lending action.
