Return on savings up by 50bps

KARACHI: The minimum return on savings has become seven per cent as the SBP discount rate hit double digits on Wednesday.

Announcing its monetary policy the State Bank raised its policy rate by 50 basis points (bps) to 10 per cent from 9.5pc. The hike attracted both positive and negative reactions from stakeholders, with most analysts saying that the increase was in line with the market expectations.

“With the increase in discount rate by 50bps, return on these saving accounts will rise to 7pc on average monthly balance,” said a Topline Research report issued on Wednesday.

The State Bank circular issued in September 2013 said that with effect from October 1, 2013, the Minimum Profit Rate to be paid on all Pak Rupee Saving Deposits will be 50 basis points below the prevailing SBP Repo Rate.

Change in the Minimum Profit Rate, following any change in the SBP Repo Rate, will be applicable with effect from 1st day of the subsequent month.

This is second increase in the discount rate in two months. Last time, the rate was raised by 50bps to 9.5pc from 9pc. This reversal occurred after rates fell by 500bps in almost two years from as high as 14pc in June 2011.

The SBP mentioned fragile external flows coupled with rising inflation as primary reasons for the rise in discount rate.

However, analysts believe that the local currency would remain under pressure despite IMF support.

The report said that the pressure on the rupee would continue as foreign exchange reserves are declining fast.

The SBP said its reserves declined by $1.3 billion during the first quarter of this fiscal year to $4.2bn as on Nov 1.

“Keeping in view the central bank concerns to maintain positive real return and ease pressure on exchange rate, monetary tightening will continue in the upcoming announcements,” said Shajar Research in its report.