Interest rate, investment ceiling cut under study
Wednesday, 27 January 2010
S M Jahangir
The government is considering reducing interest rate and investment ceiling under the savings instruments to put a limit to its borrowings from the sources, officials said.
"Both the options - reduction of interest rate and curbing the investment ceiling - are under study in a bid to check the ever-growing buying spree of state-run savings tools, a government official told the FE.
Among the options, a proposal for rationalisation of present interest rates on savings instruments is under active consideration against the backdrop of the recent cut in the deposit rates by commercial banks.
The maximum rate of interest on the existing savings instruments is 12.50 per cent while the rate on short-term investment is less than that, the NSD sources said, adding the investment ceiling under the savings tools is Tk 5.0 million for individual investors.
Following the Bangladesh Bank intervention, commercial banks operating in the country have reduced both deposit and lending rates and they are also pressing the government for slashing the interest rate on savings tools as well.
According to the banks, many investors are investing more in the state-run savings certificates and bonds following the reduction of deposit rate by banks.
Apart from the pressure from the banking system, an unusual rise in government's borrowing from savings instruments has also necessitated the authorities to limit the sales of the investment tools, officials said.
Referring to the figures, the official said the government's net borrowing from savings tools during the July-November period exceeded the target set for the fiscal year (FY) 2009-10.
The government borrowed a net amount of Tk 47.07 billion until November last as against the total target of Tk 32.78 for the entire fiscal year.
Terming the figure an all time high, the official said: "If the current selling trend persists, the net borrowing may cross Tk 100 billion by the fiscal-end."
Like the net borrowing, the gross sales of savings tools during the July-November period also hit Tk 102.83 billion against the Tk 167.94-billion target fixed for the entire FY 2009-10.
Besides, the government's liability on account of servicing its debt from savings tools is on the rise as it paid Tk 27.87 billion as interest against its borrowing from the system during the last July-November period, official figures revealed.
Taking such abnormal buying trend into account, the finance ministry at a recent meeting discussed how to limit the sales growth, amid its growing demand for fund to finance its budgetary shortfall.
Although the finance division gave its opinion in favour of decreasing the number of investment tools, the meeting did not accept it.
Rather, the meeting formed a committee, headed by a deputy governor of the central bank, to recommend how to reduce interest rates on savings tools, official sources said.
The government is considering reducing interest rate and investment ceiling under the savings instruments to put a limit to its borrowings from the sources, officials said.
"Both the options - reduction of interest rate and curbing the investment ceiling - are under study in a bid to check the ever-growing buying spree of state-run savings tools, a government official told the FE.
Among the options, a proposal for rationalisation of present interest rates on savings instruments is under active consideration against the backdrop of the recent cut in the deposit rates by commercial banks.
The maximum rate of interest on the existing savings instruments is 12.50 per cent while the rate on short-term investment is less than that, the NSD sources said, adding the investment ceiling under the savings tools is Tk 5.0 million for individual investors.
Following the Bangladesh Bank intervention, commercial banks operating in the country have reduced both deposit and lending rates and they are also pressing the government for slashing the interest rate on savings tools as well.
According to the banks, many investors are investing more in the state-run savings certificates and bonds following the reduction of deposit rate by banks.
Apart from the pressure from the banking system, an unusual rise in government's borrowing from savings instruments has also necessitated the authorities to limit the sales of the investment tools, officials said.
Referring to the figures, the official said the government's net borrowing from savings tools during the July-November period exceeded the target set for the fiscal year (FY) 2009-10.
The government borrowed a net amount of Tk 47.07 billion until November last as against the total target of Tk 32.78 for the entire fiscal year.
Terming the figure an all time high, the official said: "If the current selling trend persists, the net borrowing may cross Tk 100 billion by the fiscal-end."
Like the net borrowing, the gross sales of savings tools during the July-November period also hit Tk 102.83 billion against the Tk 167.94-billion target fixed for the entire FY 2009-10.
Besides, the government's liability on account of servicing its debt from savings tools is on the rise as it paid Tk 27.87 billion as interest against its borrowing from the system during the last July-November period, official figures revealed.
Taking such abnormal buying trend into account, the finance ministry at a recent meeting discussed how to limit the sales growth, amid its growing demand for fund to finance its budgetary shortfall.
Although the finance division gave its opinion in favour of decreasing the number of investment tools, the meeting did not accept it.
Rather, the meeting formed a committee, headed by a deputy governor of the central bank, to recommend how to reduce interest rates on savings tools, official sources said.