The Reserve Bank of India (RBI)’s decision to increase interest rates last year to curb inflation has undoubtedly made borrowing expensive, but its positive impact on the country’s economy is also clear. This affects the domestic savings rate which the central government has been trying to increase for years. Read the full news.

Jai Prakash Ranjan, New Delhi. The Reserve Bank of India’s decision to increase interest rates last year to control inflation has undoubtedly made loans expensive, but its positive impact on the country’s economy is also clear. This impacts the domestic financial savings rate which the central government has been trying to increase for the last few years.

Domestic savings rate increased

Some members of the Monetary Policy Committee (MPC) of the Reserve Bank of India believe that banks are trying to make deposit schemes more attractive and its impact on savings rates is already visible.

Despite inflation, the financial sector’s interest in savings is increasing. According to the minutes of the last Monetary Policy Committee meeting, the household savings rate as a share in GDP stood at 4% in the third quarter of the financial year 2022-23 and has increased to 7% in the fourth quarter (January to March 2023) . ,

Growth in financial savings has slowed down after Covid-19

Economist Ashima Goyal said at the last Monetary Policy Committee meeting that before the outbreak of the new crown epidemic, the country’s total financial savings (bank deposits, cash, investments, etc.) were 7% of GDP. By fiscal year 2022, it will decline by 5.1% year-on-year-23. She comes here.

There has been an upward trend in financial savings in the year since the outbreak of COVID-19, but this trend cannot be sustained going forward. However, aggregate household savings appear to have increased subsequently. Ashima said there has also been a significant increase in physical investment by Indian households since the last financial year.

Household savings are going to increase in the coming days

India has a young population that does not shy away from making physical investments (real estate, etc.) despite the high cost of borrowing. Household savings are likely to increase in the coming days as banks have now started transferring the benefits of the interest rate hike cycle to deposit rates.

Signs of this became evident in the last quarter of financial year 2022-23, when net financial savings increased to 7% of GDP. Speaking on the occasion, the MPC Minister said that another member Dr. Rajeev Ranjan said that the increase in investment and revenue will have a positive impact.

Any comment on SBI’s economic report?

Let us tell you that a few weeks ago, SBI Ecowrap had reported that financial savings have been affected as interest rates have fallen to their lowest level in the last few years and people are more interested in physical savings.

Now that banks are also starting to increase deposit rates, the public may turn to banks again. Banks have lagged behind in providing benefits to customers. Earlier this month, the Reserve Bank of India said in a report that when interest rates were reduced by 250 basis points (2.50%) between February 2019 and March 2022, bank deposit rates fell by an average of 2.09% .

Now, when the interest rates were increased again by 2.50% from April 2022 to September 2023, the bank has increased the deposit interest rate only by 1.68%. That is, banks are ahead in reducing interest on deposit schemes, but are not showing speed in giving benefits to the customers.