Profit rates on savings schemes cut by 68bps

Published October 2, 2015
The decision is taken in the wake of falling inflation and resultant declining interest rates.—Reuters/File
The decision is taken in the wake of falling inflation and resultant declining interest rates.—Reuters/File

KARACHI: The government on Thursday slashed the rates of return on various National Savings Schemes (NSS) by up to 68 basis points in the wake of falling inflation and resultant declining interest rates.

Returns on Regular Income Certificates were cut by 68bps to 7.85pc per year, Bahbood saving scheme by 24bps to 10.80pc, Defence Saving Certificates by 28bps to 8.87pc and Saving Accounts by 50bps to 4.24pc.

A reduction in NSS profit rates badly hits savers, particularly retired people as these savings are their only source of income.

It seems that cuts in the returns saving schemes were corrections in the wake of falling inflation, but low inflation means less increase in prices, and not reduction in the previous high prices of all goods and services.

The Consumer Price Index (CPI), a key barometer to record price movements in essential items, clocked in at 1.3pc in September led by falling oil prices and food inflation. On a month-on-month basis, inflation fell 0.1pc during the month as against an increase of 0.3pc in August 2015 and 0.4pc in September 2014.

The falling inflation has already impacted in lowering of policy rate which was again slashed by 50bps to 6pc in September. In the prevailing situation, investors cannot seem to get a better return on any savings schemes offered by banks or other institutions.

The government has levied withholding tax on income from the saving schemes that has further squeezed profits.

Exemption of deduction of withholding tax has been withdrawn with effect from July 1, 2013 on profit of investment of up to Rs150,000 in Defence Savings Certificates, Special Savings Certificates/Accounts, Savings Accounts, Short-term Savings Certificates and National Savings Bonds.

The savings mobilised under NSS started falling since November 2014, the month SBP started slashing the interest rate. It was cut by 300 basis points in the FY15 alone to 6.5pc.

The amount mobilised in November under the NSS was Rs90.3bn which fell to Rs22.5bn in December and reached the lowest level of Rs8.4bn in April 2015.

“In the first quarter of FY16, CPI inflation averaged 1.6pc as against 7.5pc in the same period last year. We now anticipate CPI to remain in the range of 4.5pc to 5pc in FY16 due to lower aggregate demand and declining commodity prices,” said a research report issued by the Topline Securities on Thursday.

The inflation trend indicates that there is no hope for the savers to see a rise in the returns during this fiscal year.

Published in Dawn October 2nd, 2015

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