KARACHI: Improved returns following a sustained increased in policy rate has helped attract fresh rupee deposits of Rs690 billion this year for banks, while reducing the appetite of greenback deposits for domestic investors.

Bankers said deposits of rupee have proved attractive as compared to those in dollars since the two currencies have substantial difference in returns.

The State Bank of Pakistan has been increasing the interest rates for more than a year as they currently stand at 13.25 per cent, making rupee deposits an attractive avenue.

Between January and July, rupee deposits of banks have increased by Rs690bn to Rs13.747 trillion, according to latest data of the State Bank of Pakistan.

Bankers claimed the long-term deposits are getting a 10-11 per cent return though it varies depending on the individual institution with small banks offering more than the large ones. On the other hand, short-term deposits yield about 8pc or more on rupee deposits.

However, unlike rupee, dollar deposits in local banks give back around 1.5-2pc per annum. The SBP data show the dollar holdings of commercial banks have increased by $566 million to $7.294bn from January-July.

According to bankers, the exchange rate has achieved stability for more than a month has which reduced the appetite for dollar among investors.

“There are no buyers in the open market which is why we have been selling $7-8 million per day in banks,” said Forex Association of Pakistan President Malik Bostan. From May-July, around $750m have been sold to banks, as against $317m in same period last year, figures show.

While bankers were satisfied with the increase in deposits, they are also comfortable with investment in the government papers that offer over 14pc.

In the last auction of treasury bills the return on 12-month papers offered 14.24pc while the last auction of Pakistan Investment Bonds (PIBs) offered 14.22pc for 3-year instruments.

Published in Dawn, September 3rd, 2019