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Rising G-Sec Yields Signal Rate Hike

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Rising G-Sec Yields Signal Rate Hike
Rising G-Sec Yields Signal Rate Hike
Joydeep Sen - 29 October 2022
Small Savings Schemes (SSS) serve a large section of our country. For perspective, the quantum managed in National Small Savings Fund (NSSF) is approximately Rs 25 lakh crore. Given the small ticket size of these schemes, they serve a large chunk of the population. The interesting thing though is to understand how the interest rates in these schemes are set. That would give a perspective on why upward revision over the medium term is a possibility. The interest rates on these schemes are reviewed every quarter, and announced on the last day of the quarter for the next quarter. There is also a reference benchmark for this exercise, which is the level at which government securities (G-secs) are traded in the secondary market. The rationale for linking these to G-sec yields in the secondary market is to keep them aligned with the interest rate trends. G-sec yield movements reflect the actual and anticipated events in the economy pertaining to the interest rate movement. Government bond yields of commensurate maturity are considered as the maturity of the SSS. There is also a...
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