Household savings rate slides to 10.4% in Q2 from 21% in Q1: RBI

According to a recent article, RBI has declared that he household financial savings rate slid to 10.4% of GDP – closer to pre-pandemic levels – in Q2FY21 from 21% in Q1 in a counter-seasonal manner. The savings rate may have fallen further in Q3 with a pick-up in consumption and economic activity, the article read.

“The COVID-19-induced spike in household financial savings rate in Q1:2020-21 waned substantially in Q2 in a counter-seasonal manner. While households’ deposits and borrowings picked up, their holdings of currency and savings in mutual funds moderated”, RBI stated.

This reversion is mainly driven by the increase in household borrowings from banks and non-banking financial companies, accompanied by a moderation in household financial assets in the form of mutual funds and currency. Nonetheless, households’ financial savings rate for Q2FY21 ruled higher than that of 9.8% witnessed in Q2FY20.

Increased household consumption, particularly its discretionary component, could be attributed to resumption in economic activity following the easing of lockdown. With the gradual reopening/unlocking of the economy, households switched from an ‘essentials only’ spending pattern to discretionary spending, which eventually resulted in the reversal of household financial savings from the peak it attained in Q1FY21.