Discount rate is one of the crucial financial assumptions in an actuarial valuation and is used to discount the expected future cash flows to arrive at the present value of obligation of employee benefit plans. This rate is determined with reference to market yields on government bonds at the balance sheet date and hence is re-evaluated at every valuation date.
We have seen an increasing trend in the yields on the government bonds during the last two quarters and the rates are now stabilizing well above 7% for the current period. The below graph shows the comparison of yields at different dates. As at 31st March 2022, the discount rates were in the range of 6.4% to 7.4% but for 30th Sept 2022 this range has increased to 7.3% to 7.8% for most of the valuations.
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