Saving rates slashed by up to 150bps

KARACHI: The government has reduced the profits on National Savings Sch­e­mes (NSS) by up to 150 basis points (bps) after reducing the interest rate by 2.5 per cent during the last two months.
Due to the fall of inflation to 11.1pc in July, the State Bank was compelled to reduce the interest rate to meet market demand and bring some easiness for the private sector to borrow from banks.
The State Bank slashed the interest rate by 1.5pc on June 10 to 20.5pc from 22pc and again reduced the rate by 100bps to 19.5pc on July 29. The cuts in the interest rate served as an indicator of the drop in the profits on NSS.
According to official data, the rates of saving acc­ounts decreased by 150bps to 19pc from 20.5pc, a decline of 1.5pc. The Short Term Saving Certificate cur­r­ently offers a return of 17.9pc, as compared to 19.24pc earlier, showing a decrease of 134bps. The Sarwa Islamic Savings Acc­o­­unt also saw a drop of 150bps to 19pc.
For the last four years the savings mobilised by the National Saving Sche­mes showed a negative picture which means net withdrawal. The net withdrawal from NSS was Rs317.3 billion in FY21, Rs358.7bn in FY22, Rs381.8bn in FY23 and Rs111.7bn in FY24.
The NSS caters up to four million customers, mostly retired persons keep their money to earn risk free profits. The interest rate trend shows that the State Bank would further reduce the rate in coming months and could bring it to 14-16pc provided the consumer price index remains within the estimated target.
This fall in the interest rate would further reduce the profits on NSS.­
Published in Dawn, August 13th, 2024