Rate hikes yield good results : Big jump in NSS investments

[Naveed Yaseen]

By Mushfiq Ahmad

KARACHI: Investment in national savings schemes (NSS) saw a big jump during January thanks to increase in interest rates on different products effected by the government in December.

According to official figures, the government managed to raise Rs 25.96 billion in January, which is the highest amount raised in a month during the current financial year. The previous highest amount was Rs 11.79 billion in October. Total government borrowing through national savings schemes stood at Rs 74.98 billion and the government looks set to achieve its target of raising Rs 150 billion set for the full year.

Last year Central Directorate of National Savings had raised Rs 87 billion, surpassing the revised target of Rs 80 billion.

Interest in national savings schemes increased because the government enhanced NSS rates by between 1 percent and 1.8 percent on different saving schemes from December 1. The rate of profit on Bahbood Saving Certificates and Pensioner’s Benefit Accounts had surged from 15 percent to 16.80 percent. Rate on Savings Accounts had been increased from 9 percent to 10 percent and rate on Special Savings Certificates had risen from 13 percent to 14.53 percent. Rate on Regular Income Certificates had jumped from 13.30 percent to 15 percent.

Impact on banks: For the first time in many yeras, banks have come under real pressure to give a fair deal to their depositors and enhance deposit rates. The banking system now faces stiff competition from national saving schemes.

Increase in NSS rates makes the saving schemes more attractive for individuals and those institutions that are allowed to invest in NSS.

The Central Directorate of National Savings had also increased profit rates on national saving schemes (NSS) in October as the government has been trying to move away from inflationary borrowings from central bank to non-inflationary instruments such as NSS.

Few investment options: There is one other factor behind the rise in investment in national savings besides the rate hikes. People have fewer investment options in the current economic situation because stock markets have been bearish and there is no chance of recovery in sight. Mutual funds’ net asset values have fallen sharply and so has investors’ confidence in them.

Also, there is no charm in currency market as the measures taken by the central bank recently have made the rupee rather stable. So there is no attraction in buying dollars right now. And investment in commodities is not an option available to small investors because they lack storage capacity. Gold prices have been rising, but small investors stay away from the yellow metal becuase of extreme volatility in the bullion market.

http://www.dailytimes.com.pk/default.asp...2009_pg5_1