Will PPF interest rates dip below 7% in July—September quarter? Will the government act soon?

With the Reserve Bank of India (RBI) slashing the repo rate by 100 basis points this year, speculation is rife that Public Provident Fund (PPF) interest rates could drop below 7% in the upcoming July revision. While analysts point to falling bond yields and policy formulae as indicators of a possible rate cut, others argue that political and behavioural factors may delay any drastic move.

PPF, currently offering 7.10%, is linked to the average yield on 10-year government securities. According to the Shyamala Gopinath Committee formula, PPF returns are meant to be 25 basis points above the average 10-year G-sec yield. With yields now hovering at 6.325%, the formula pegs the fair PPF rate at approximately 6.575%, potentially triggering a 52.5 basis point cut from the current rate.

Atul Shinghal, Founder & CEO of Scripbox, said, “With the Reserve Bank of India cutting the repo rate by a cumulative 100 basis points in 2025, attention is now on the upcoming quarterly revision of small savings scheme (SSS) interest rates.” Shinghal advised investors to lock in current rates before the expected downward revision.

The rate-cut narrative aligns with the RBI’s shift towards an accommodative monetary policy, aimed at supporting economic growth. This year, the central bank has lowered 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%. As a result, the 10-year bond yield has declined from 6.779% in January to 6.247% in June.

However, not everyone believes the government will immediately cut PPF rates. Adhil Shetty, CEO of BankBazaar.com, noted, “It is important to remember that the formula recommended by the Shyamala Gopinath Committee is indicative and not binding, and the government has frequently deviated from it.”

Shetty pointed out that political sensitivities around PPF — a savings favourite among middle-class and retirement-focused investors—could prevent abrupt cuts. “A sharp cut could push savers to exit formal channels or chase riskier products, undermining financial inclusion goals,” he warned. Instead, he said, the government might opt for a slower correction over time.

Supporting this view, Yash Sedani, AVP, Investment Strategy at 1 Finance, said, “Historically, [the government] has aimed to keep PPF rates competitive to attract and retain small savers. In 2016 and 2017, the government maintained higher PPF rates despite market pressures to lower them.”

According to Sedani, the current rate of 7.10% still falls within the acceptable range of 6.55% to 7.3%, as suggested by the Gopinath formula. “To maintain competitiveness and support retail investors, the government may delay any rate cuts, keeping the PPF rate steady for now,” he said.

Rajani Tandale, Senior VP, Mutual Fund at 1 Finance, agreed that interest rates across small savings schemes are likely to fall. “Given its focus on fostering economic growth through a more accommodative monetary policy, the Reserve Bank of India reduced the repo rate by 0.5% on June 6th… interest rates for small savings schemes are likely to be lowered,” she said.

Public Provident Fund (PPF) interest rates have seen notable fluctuations over the decades. The current rate stands at 7.1% per annum, a figure that has remained unchanged since April 2020. Interest is calculated monthly and credited annually.

Historically, PPF offered a peak interest rate of 12%, which remained in place for a substantial period from 1986 to 1999. This was followed by a gradual downward trend—dropping to 9.5% in 2000, then to 8% in 2003, and further to 7.9% in 2017.

Today’s 7.1% reflects a phase of relative stability in small savings rates. While lower than historical highs, it still offers tax-free, government-backed returns attractive to long-term, conservative investors.