Interest rates do not seem to be the main driving force of the aggregate saving rate: MPC member
The likely adverse impact on bank deposits and moderation in household savings should not be the reason for not going for a further rate cut, according to monetary policy committee (MPC) member Ram Singh.
The MPC, at its meeting held between September 29 and October 1, unanimously voted to hold the policy repo rate unchanged at 5.50 per cent.
While moderation in aggregate savings rates is a concern from a macroeconomic perspective, interest rates do not seem to be the main driving force of the aggregate saving rate, per the MPC member’s observations at MPC’s last meeting
Singh, who is Director at Delhi School of Economics, referred to research that suggests that aggregate saving rates are driven by several factors, including demographic and other structural changes in the economy, differences in the rates of return on different forms of capital and labour market dynamics, including the distribution of wages and income across economic strata.
India’s gross domestic savings rate fell from 34.6 per cent of GDP in 2011-12 to 30.7 per cent in FY24, with a slight uptick in FY25.
During 2014-24 (excluding the two Covid years) while the policy rates varied significantly in the range of 7.75-5.50 per cent, the aggregate saving rates fluctuated in the range of 29.6 per cent to 32.2 per cent.
“At the household level, interest rates do matter. But their effects are more pronounced on portfolio choices than on total savings. Thus, the likely adverse impact on bank deposits and moderation in household savings should not be the reason for not going for a further rate cut,” he said.
household savings
The RBI’s analysis of household savings a shift away from bank term deposits. The share of term deposits declined from 50.54 per cent in FY20 to 45.77 per cent in FY25, due to households moving to alternative, higher-yielding investments like mutual funds and equities, per the minutes of the MPC meeting.
“…what could be the downsides of a further rate cut? It may make more challenging for the banks to mobilise deposits to support credit growth. But what matters more is the total savings and the flow of funds to the real sector, and not just credit through the banking channel. An increasing share of savings is being channeled to the private sector through bond and equity markets,” the MPC member said.
According to the RBI data, the total flow of resources from non-bank sources to the commercial sector increased by ₹2.66 lakh crore in 2025-26 so far, more than offsetting the decline in non-food bank credit.
Published on October 16, 2025