The Reserve Bank of India (RBI) has cut the repo rate by 100 basis points this year, leading to speculation that the interest rate on the Public Provident Fund (PPF) could fall below 7% in the upcoming July review. Some experts believe that the falling yields on government bonds and the formula used to determine PPF interest rates point towards a possible reduction. However, others argue that due to political and practical reasons, the government may avoid making a major change so soon.
Currently, the PPF interest rate stands at 7.10%, which is linked to the average yield of 10-year government bonds. According to the formula recommended by a government committee, PPF interest should be 25 basis points higher than the 10-year bond yield. At present, the yield is around 6.325%, making the calculated PPF rate approximately 6.575%—about 52.5 basis points lower than the current rate.
No Loss If You Invest Now
Financial advisors suggest that investors should consider locking in the current rates before any potential reduction. This expected rate cut aligns with the RBI’s “accommodative policy” approach aimed at boosting economic growth. In 2025, the RBI cut the repo rate by 25 basis points each in February and April, and by 50 basis points in June, reducing it from 6.5% to 5.5%. Alongside, the 10-year bond yield also declined from 6.779% in January to 6.247% in June. Still, not everyone believes that the government will immediately reduce the PPF interest rate.
Government May Take an Independent Approach
Experts note that the committee’s formula is only a guideline and not binding. The government has previously made decisions independent of this formula. PPF is a widely preferred saving option, especially among the middle class and those planning for retirement. A sudden cut in interest rates might push people away from formal saving schemes or towards riskier investment options, potentially harming financial inclusion. Therefore, the government might choose to reduce rates gradually.
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History of PPF Interest Rates
PPF interest rates have fluctuated over the years. The current rate of 7.1% per annum has remained unchanged since April 2020. Interest is calculated monthly but credited annually. Between 1986 and 1999, PPF offered a peak interest rate of 12%. It was reduced to 9.5% in 2000, 8% in 2003, and 7.9% in 2017.
While today’s 7.1% rate is lower than in the past, it remains a tax-free and government-backed option, making it attractive for long-term and risk-averse investors. The new interest rates are expected to be announced by the end of June and will take effect from July 1.