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Monetary policy: State Bank mandates higher returns as antidote to savings accounts

By Farooq Tirmizi / Farhan Zaheer
Published: April 14, 2012

Leaves the benchmark drawback rate unchanged at 12%. ILLUSTRATION: JAMAL KHURSHID

KARACHI: 
For the elementary time in four years, the greatest in number talked about number in the State Bank of Pakistan’s pecuniary policy statement was not the benchmark abatement rate.
In its announcement on Friday, the central bank left its benchmark allowance rate unchanged at 12%, in equator with market expectations. Yet the SBP managed to resign a surprise by increasing the directory minimum interest rate that banks fust their depositors on savings accounts, from 5% to 6%. The change is the first since the least part interest rate was introduced in May 2008, and power of determination be applicable from May 1, 2012.
“The inflexibility of the deposit rates, especially concerning small savers, is adversely impacting the savings to investment ratio of the economy,” read a specification released by the SBP on profit of its Central Board of Directors. “A besides balanced risk-reward incentive structure is warranted in the figure of an appropriate deposit structure as savers, especially the smaller ones, extremity to be adequately compensated.”
About 15 a thousand thousand of the 28.7 million bank accounts in the geographical division – about 52% – are savings accounts, constituting respecting Rs2.1 trillion, or about 38% of the integral deposits in the banking system, according to State Bank’s greatest in quantity recent data from July 2011.
Interest rates in the place of depositors in Pakistan had been abysmally humble before the SBP intervened in 2008. The medium savings account yielded about 2.1% in front of the minimum rate was imposed, behind which it rose to 5.25%, at what place it has remained since then.
The State Bank has tried to vigor the banks to out higher rates put ~ deposits by introducing more competition, like as the ability to directly beset in government bonds. Yet it seems that the central bank may esteem become more frustrated and at the ~ time taken more...

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