No rate cut on savings tools this year

The interest rate on savings instruments will remain unchanged for the time being, in a development that can be termed an about turn for Finance Minister AMA Muhith, who only a couple of days ago indicated it would be lowered.

The new government, which will take office following the national election scheduled for later in the year, will take a call on the matter, Muhith said yesterday after a review of the interest rate on savings instruments.

"Investment in savings instruments is part of the social safety net," he told reporters after the meeting, which was held at his secretariat office.

Analysts and banks have long been calling for cuts in the interest rate for savings instruments, which have been deflecting deposits from the banking system.

The rate of interest on savings certificates is about 12 percent whereas deposits with banks yield 6 percent.

At the same time, the government's interest expenditure is ballooning for the excessive sales of savings certificates, which has also prevented the state from going for low-cost bank borrowing.

In so doing, the government is creating a large financial burden for the near future.

Besides, lowering of the interest rate on savings certificates was one of the conditions put forward by banks to bring down the lending rate to single digit.

At the meeting with the chairmen and managing directors of banks on August 2, Muhith intimated that the interest rate on savings instruments would be cut.

Fazle Kabir, governor of the Bangladesh Bank; Eunusur Rahman, senior secretary of the banking division; Mosharraf Hossain Bhuiyan, chairman of the National Board of Revenue; and Abdur Rouf Talukder, finance secretary, attended the meeting yesterday.

At the meeting it was decided that the finance division and the internal resource division will conduct a study on the interest rate on savings certificates and submit a recommendation to the government within the next two months.

On the basis of the recommendation of the finance ministry the new government will take a decision.

Banks last week pledged to lower the interest rates on lending and deposits to 9 percent and 6 percent respectively from August 9.

But for that, the state-owned enterprises must keep their funds with private banks and the interest rates on national savings instruments are lowered in line with the bank deposit rates.

On Sunday, the finance minister held a meeting with all state-owned enterprises and told them to keep their funds with the banks at 6 percent interest rate.