Govt mulls rate cut for savings certificates

The government considers reducing the interest rate of savings certificates in line with the bank deposit rate to get relief from the interest payment burden, finance ministry officials said.
The ministry has placed a recommendation recently to minimise the interest rate in a meeting on the macroeconomic situation. The meeting was headed by the prime minister.
However experts suggest the government keep the interest rate unchanged for small depositors who depend on savings schemes.
Net sales of national savings certificates shot up by 273 percent in the first quarter of the current fiscal year to Tk 2,713 crore from Tk 713 crore during the same period last year, according to a finance ministry report.
Banks' deposit rate came down to 7.9 percent in the recent time, while interest rates for the savings certificates remain between 12 percent and 12.5 percent.
So, sales of savings certificates increased significantly that may maximise the government's expenditure for paying interest. The high interest rates of the instruments may also cast a shadow on the expansion prospect of capital market.
The officials of the ministry said the government has already borrowed around 78 percent money through the savings certificates against its target of borrowing Tk 3,200 crore in the current fiscal year.
The central bank has capped the banks' lending rate at 13 percent, which compelled the banks to cut deposit rate to minimise losses.
Against the backdrop, the high rates of savings certificates are attracting depositors.
Anjuman Ara Khatun, a government official, withdrew Tk 1 lakh from her matured deposit pension scheme and decided to buy savings certificates, as the banks are not ready to pay more than 8 percent interest against savings.
"Banks' rates are no more lucrative for saving," she said while talking to The Daily Star.
International Monetary Fund (IMF) has recently met senior officials of National Board of Revenue, Finance Division and Savings Directorate, and suggested bringing down the rates of savings certificates to a single-digit level.
The government should cut savings certificates' rates to shake off a big interest burden, said Zaid Bakht, research director of Bangladesh Institute of Development Studies.
The banks' lower deposit rates are the major reasons behind a surge in sales of savings certificates.
However Bakht said the present rate should remain unchanged for the pension scheme holders. But the government should offer the rate to the real pension scheme holders after scrutinising all valid documents.
"Black money holders usually buy savings certificates. The government should not give them benefits in general," he said.