Rigidity in Small Savings Rates |
A delay in revising small savings deposit rates widens the spread between them and banks’ term deposit rates of comparable maturities, potentially including a substitution from bank deposits to small savings. Empirical estimates indicate that a 100-basis-point increase in this spread raises the share of small savings in total fresh term deposits—that is, the sum of bank term deposits and small savings deposits—by about 1.2 percentage points. This substitution effect........