ISLAMABAD: Ahead of the monetary policy announcement by the State Bank of Pakistan (SBP) next week, the government on Friday slashed by a small margin profit rates on most of the national savings instruments including those in the so-called Sharia-compliant papers with immediate effect.

However, the returns on schemes under Behood, Pensioners Benefit and Shuhada Family Welfare have been kept unchanged for now. The adjustment in rates of return has come about following a cut in interest rates on government papers (T-bills) early this week in anticipation of a reduction in the central bank’s policy rate from 22pc peak.

According to notifications issued by the Ministry of Finance, the rate of return for Special Savings Certificates and accounts has been reduced by 0.40 basis points to 16pc for the first five years from 16.04pc at present while the rate for the sixth year has been cut by 0.80bps to 16.6pc from 17.4pc at present.

The rates for Defence Savings Certificates have witnessed on average 0.19bps cut to 14.2pc from 14.39pc at present. Under this scheme which is normally a long-term savings investment, the investors would not face any loss in the first seven years but the next three years (8 to 10) would see major reductions in line with the expected interest rate cuts.

Continues paying higher returns to banks on T-bills, PIBs

Likewise, the rate of return on regular income certificates has been cut slightly by 0.12bps to 15pc from 15.12pc so far.

Similarly, the returns on Short-term Savings Certificates (STSC) have also slightly come down to Rs5,070 per Rs100,000 instead of Rs5,180 for three months. The six-month STSC instrument would now earn Rs10,150 per Rs100,000 instead of Rs10,380. In the same category, the one-year paper would now yield Rs20,340 per 100,000 instead of Rs20,800 at present. As such, the rate cut comes down from 20.8pc in the past to 20.34pc from now onwards.

On the other hand, the Sharia-compliant instruments have seen greater setbacks. For example, the “expected return” on a one-year Sarwa Islamic Term Account (SITA) has been reduced by 283bps to 18.54pc instead of 21.37pc earlier. The return is payable on maturity i.e. one year.

The expected profit rate on three-year SITA has also been cut by 260bps to 15.4pc from 18pc. In the same line, the expected profit on five-year SITA has been brought down to 15pc from 15.66pc, down by 66bps.

The returns for Behbood Savings Certificate, Pensioners’ Benefit Account and Shuhadas Family Welfare Account have been kept unchanged at 16.08pc while the markup rate on savings accounts has also remained unchanged at 20.5pc.

On the other hand, the rate on Sharia-compliant Sarwa Islamic Saving Account (SISA) has also been maintained at 20.5pc. The CDNS has dispatched revised rate sheets to all the regional offices with instructions that the existing stock of blank certificates would now be issued at new rates w.e.f Jan 26.

The return on saving accounts and certificates is linked with the central bank’s policy rate and is normally kept slightly higher than T-bills and investment bonds to ensure better returns to small savers without drastically affecting the government budget. However, the government is paying over 22pc profit to secondary market players in investment bonds and T-Bills but still paying lower returns to its citizens despite being the safest borrowing.

The rates of national savings schemes are announced every two months and are linked to the cut-off yield of long-term Pakistan Investment Bonds. As of the last auction earlier this week, the return on 3-year and 10-year PIBs ranged between 20.47 to 20.14pc, down from 20.96pc and 20.79pc a fortnight ago. The Karachi Inter Bank Offered Rates (Kibor) has also dropped 20.62pc on Thursday when compared to 20.82pc earlier. The Kibor had peaked at 24.73pc about a quarter ago.

Published in Dawn, January 27th, 2024