THIS refers to the letter ‘Sheer discri- mination’ (Oct 21) which highlighted the discrimination in the interest/profit rate between dollar and rupee deposits in Pakistani banks. The matter needs to be seen in due perspective.

For those maintaining United States dollar accounts, the real return comes not from the profit they earn on it, but from the increase in the exchange rate. At the end of the last fiscal that ended on June 30, 2023, the dollar appreciated 40 per cent against the rupee, which is slightly higher than the average rate of inflation of 38pc during this period.

This inflation is directly linked to the depreciation of the rupee, making fuel imports expensive, with cascading effect on all sectors in the economy. It was to curb this high inflation that the State Bank of Pakistan (SBP) resorted to increasing the policy rate as it is assumed that high lending rate discourages spending and increases savings. It is another debate altogether whether increase in policy rate is an effective monitory policy mechanism for cost-push inflation. Those maintaining rupee accounts have been paid 17pc net of tax profit, but is it effective to preserve the value of their deposits in real terms when the inflation is running at 38pc?

In fact, those holding dollar deposits have been better off during this period, as their real return is higher if we further consider that there is no withholding tax on exchange gain, compared to 15-30pc withholding tax on profit payments.

The banking credit was easily available in expansionary times, such as in the period from 2005 to 2007, when there was an influx of dollars due to Pakistan’s role post-9/11. The exchange rate was relatively stable, the interest rates on rupee deposits were around 5pc, which was the same as was being paid on dollar accounts at the time.

The economic factors have since changed and holding one’s savings in rupee terms is no more viable even with 17pc interest rate. The profit is really good for nothing.

Sadia Nazeer
Islamabad

Published in Dawn, November 16th, 2023