Govt mulls cut in savings tools interest rates

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Doulot Akter Mala
The government is actively considering a cut in interest rates of saving instruments in a bid to balance it with the rates of commercial banks.
Internal Resources Division (IRD) of finance ministry is conducting a study to harmonise the interest rates and the resultant impact on the economy and revenue earning.
The government has brought down bank interest rates to 9.0 per cent while savings instruments are offering 12 per cent for investors.
International Monetary Fund (IMF) and bankers have been urging the government to bring down the interest rates of savings tools blaming the higher rates for distortion in the credit market.
The finance ministry also received the suggestion from a meeting of financial management and review held on last November, chaired by Prime Minister Sheikh Hasina.
Asked about the issue, IRD secretary Dr. Nasiruddin Ahmed said: "The government has to conduct a detailed study on the possible impact before lowering the interest rates of saving tools."
"We can't take decision hurriedly as it has social and economic effects," he said.
IMF has suggested the government for conducting a study so that the government could decide on what extent it could slash the rates, Ahmed said.
Finance Minister AMA Muhith will hold a meeting tomorrow (Wednesday) with all relevant government entities to discuss reduction of interest rates of saving instruments.
The move came after the government noticed that found investors were diverting their funds from the banks to the saving instruments which might cause liquidity crisis in banks.
The government's borrowing from saving instruments has increased by 313.21 per cent in the first six months of the current fiscal while it dropped by 22 per cent from banking system.
A senior government official said: "Investment in saving instruments has increased significantly in the first half of the current fiscal due to high interest rates."
People are investing more on saving instruments due to higher interest rates in saving tools compared to bank interests, he said
Net investment on saving certificates stands at Tk 44.61 billion in July-November period crossing its annual target of Tk 32.77 billion, official data said.
In July-October period, net borrowing of government rose to Tk 39.30 billion against Tk 9.51 billion in the corresponding period, it said.
Government's expenditure will rise significantly with the increase in borrowing from saving tools as it has to pay the interest rates at 12 per cent to the investors, said an official.
The government is in dilemma on slashing the rates as investment may decline with the change, he said.
The government has paid additional Tk 10 billion as interest of saving tools in July-November period due to increase in investment this year, official data said.
It has disbursed Tk 56 billion to the investors of saving tools in July-November period against Tk 40 billion in the corresponding period last year. One-third of the amount was paid as interest rates.