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Sinha declines comment on savings rate talk

Finance Minister Yashwant Sinha said on Wednesday that he could not comment when asked whether the government planned to cut the interest rate on small savings instruments.

"I can't speak about anything concerning the budget. Not a word," Sinha told reporters when asked whether the government was considering reducing interest rates on small savings.

The budget is due to be presented on February 28.

Speculation about a cut has been fuelled by a recommendation by the Prime Minister's Economic Advisory Council that India should lower its administered rates on small savings.

The panel said the relatively high 11 percent rate on such instruments as National Savings Certificates prevented banks from lowering term deposit rates and meant higher borrowing rates for the government and the private sector.

The panel, which includes the Reserve Bank of India Governor Bimal Jalan, had suggested rates on small savings instruments be cut to "a level no more than two percentage points above the inflation rate of the last six months".

India's inflation rate, as measured by the wholesale price index, has been around eight percent since January this year.

Finance Minister Yashwant Sinha cut rates on small savings including the public provident fund in January 2000 and cut rates on the general provident fund by one percentage point.

Indian corporates say that their cost of funds is too high and have been urging lower rates.

The key bank rate, used as a benchmark by banks to set their lending rates is now eight percent and leading state-run banks charge their best borrowers a prime lending rate of 12-12.5 per cent.

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