Slashed savings

The government has slashed the return on the National Savings Schemes, effective November 1. Though this decision may disappoint the depositors, especially widows and retired persons, it is going to have a salutary impact on the economy. The move is ostensibly prompted by an expected reduction in the State Bank key interest rate in the aftermath of the monetary policy that is due this month.

The prime rate is likely to be reduced by 150 to 200 basis points from the existing 13.25 percent, and this development has precipitated a similar level of downward revision in the profit rates of national savings instruments. Not only will the government’s borrowing cost reduce, but the lower cost available in the market may also provide impetus to entrepreneurs for investment. The high borrowing cost has been one of the agitating points of the businessmen. However, a realistic SBP rate to lift the economy is considered at 7-8 percent. But this may not be achieved in the near future owing to inflationary pressures.

Arshad Majeed

Karachi