National savings profit rates slashed

ISLAMABAD: The Central Directorate of National Savings (CDNS) reduced profit rates on its various saving schemes with effect from January 1, 2020.

Profit rate on regular income was cut 36 basis points (bps) to 10.56 percent from 10.92 percent. Similarly, the rate of return on Behbood and Pension saving certificates was reduced 24 bps to 12.24 percent from 12.48 percent. Likewise, profit rate on defence saving was slashed 28bps to 10.40 percent from 10.68 percent.

The rates have been revised down due to the declining secondary market yields on long-term Pakistan Investment Bonds and Treasury-bills in recent auctions.

Analysts said lower returns on the government securities and investment schemes would help equity market attract investment from local sources. “Significant decline in secondary market yields in the last few months followed by cut in profit rates on national saving schemes makes investment in equities even more attractive in addition to low multiples already being offered by equities,” Khurram Schehzad, co-founder and executive director at BaseH Technologies said.

Market experts said lowering the rate of saving scheme would also help in boosting bank deposits due to higher interest rates. The bank deposits increased to Rs14.31 trillion by November 2019 compared with Rs13.07 trillion in the same month last year. Significant increase in banking deposits has been attributed to prevailing higher policy rate. The interest rate stands at decade-high of 13.25 percent.

Analysts are expecting cut in interest rates from March onwards with inflation expected to ease from the existing range of 11 to 12 percent.

Government domestic debt increased to Rs22.65 trillion as of September 2019 compared with Rs20.73 trillion by June 2019, according to the State Bank of Pakistan.

The CDNS data showed that the investment in saving schemes increased to Rs826.7 trillion till November 2019 compared to Rs811.87 trillion in the same month of the previous year. Investment through saving certificates increased to Rs2.42 trillion till November 2019 compared with Rs1.92 trillion in the same month of 2018.