THE government’s reported move to review its February 13 decision of halving the interest rate on postal savings is welcome. The finance minister came with such an announcement, as New Age reported on Thursday, against the backdrop of widespread concern among and criticism by savings certificate holders, who are mainly pensioners and middle-class people. The government has reduced the interest rate for the first and the second year of the deposit to 5 per cent and 5.5 per cent from the previous 10.20 per cent and 10.70 per cent. It has reduced the interest rate on savings in ordinary accounts of post offices to 5 per cent from 7.5 per cent. It has further reduced the interest rates on schemes with six-month interest withdrawal provision to 4 per cent, 4.5 per cent and 5 per cent from the previous 9 per cent, 9.5 per cent and 10 per cent. The minister said that this was done to facilitate the implementation of the single-digit interest rate in the banking sector. Economists, however, have criticised the move, saying that the reduction in interest rate will hit small savers hard.

The halving of the interest rates on savings — except for the 12 per cent interest rate on savings certificates of three- and five-year durations that are mostly deposited by relatively well-off savers — has panicked thousands of small savers as the interest is, in many cases, their sole source of income. The purpose of the government move also appears to get the savers to move back to banks. But experts say that the move is unlikely to work to this end as it would only persuade small savers to backtrack from savings which eventually would pose more problems. Post office officials, along with economists, think, and rightly so, that the overall investment in post office savings instruments — the net investment, as the National Savings Directorate says, in post office was about Tk 8,000 crore in the past 2018–2019 financial year — might drop to a third because of the interest rate cut. The government should, rather, address other overdue issues such as the soaring loans in default, now standing at about Tk 1,165 billion, and excessive borrowing from the banking sector to implement the single-digit interest rate and to drive more funds into the banking sector.

The government must, under the circumstances, review its decision on the interest rate cut on post office savings tools and let the rate be governed by and based on market demands. The government must at the same time attend to issues such as a growing amount of loans in default, irregularities and corruption in loan management and poor governance that have for long dogged the banking sector.