BUSINESS

RBI hikes interest rate on Floating Rate Bond 2028 by 53 bps to 7.88%; 0.18% higher than NSC

Reserve Bank of India (RBI) has hiked the interest rate on Floating Rate Bond 2028 by 53 bps to 7.88 per cent per annum for the period from April 04, 2023 to October 03, 2023.  

Floating Rate Savings Bond is a fixed-income option, which is issued by the Indian Government. Here investors can purchase the Floating Rate Savings Bonds with an interest rate of 7.88 per cent, which is 18 basis points higher than the interest rate being offered on National Savings Certificates or NSC, and there is no upper cap or maximum limit on investment. But these bonds come with other terms and conditions also. For example, there is a lock-in period of seven years and the interest rate is announced in advance every six months.  

“The rate of interest on Government of India Floating Rate Bond 2028 (GOI FRB 2028) applicable for the half year April 04, 2023 to October 03, 2023 shall be 7.88 per

cent per annum. It may be recalled that FRB 2028 carries a coupon, which has a base rate equivalent to the average of the Weighted Average Yield (WAY) of last three auctions (from the rate fixing day i.e., April 04, 2023) of 182 Day T-Bills, plus a fixed spread (0.64 per cent),” stated RBI in a press release. 

RBI has increased the repo rate, which is the rate at which banks borrow from the Central Bank, by 250 bps to 6.5 per cent since May 2022 to fight the high inflation trajectory and is expected to further raise policy rates before taking a pause. The Monetary Policy Committee (MPC) of the Reserve Bank will next be meeting for three days on April 3, 5 and 6 and is expected to hike the benchmark interest rate by 25 basis points to bring down retail inflation and keep pace with global peers.

In such a scenario one can consider locking funds at a higher interest rate, as hike in interest rates is expected to pause after one more hike. The interest rate on the small savings scheme was also revised on March 31, 2023, where interest rates were hiked upto 70 bps. For example, the biggest hike was in NSC which was increased 70 basis points from 7 per cent to 7.7 per cent, and the 5-year term deposit which went up by 50 basis points from 7 per cent to 7.5 per cent.

Sukanya Samriddhi Yojana or  SSY scheme for a girl child, now offers 8 per cent return, a 40 basis point hike from the previous rate of 7.6 per cent. The difference between PPF and SSY has now increased from 0.50 per cent to 0.90  per cent. Rates of other schemes, such as the Senior Citizen Savings scheme (SCSS), Term Deposits, Kisan Vikas Patra, and Recurring Term Deposits have also risen by up by 10-40 basis points. Interest rate for Public Provident Fund or PPF was, however, kept unchanged at 7.1 per cent. 

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