EPF interest rate, 10-year govt bonds spread at 16-year high of 2.5%

Bond yield drop may make it tough for EPFO to keep interest rate at 8.5%

As interest rates in India trend lower, the spread between the interest rate on employee provident fund (EPF) and 10-year government bonds has reached a 16-year high of 2.5 per cent or 250 basis points (bps). One basis point is one-hundredth of a per cent.

The EPF interest rate for financial year 2019-20 (FY20) was 8.5 per cent, against a 6 per cent yield on 10-year government bonds. The EPF interest rate has exceeded yields on 10-year government bonds by 130 bps on average since 1971. So, the current spread is about twice the historical average.

According to experts, the sharp decline