Keeping the interest rate static at 12 per cent, central bank unveiled its highly “negative approach” of luring depositors to risk-free government debt securities. This, the analysts believe, means after leaving little or no liquidity with banks for the growth-oriented private sector, the central bank now wants individual investors to invest in government debt securities like Pakistan Investment Bonds (PIBs), Market Treasury Bills, Ijara Sukuk, etc to raise more budgetary funds for the cash-strapped government. Central bank, in its Monetary Policy Decision (MPD) for January and February, said it had been encouraging depositors to invest in government securities through Investor’s Portfolio Securities (IPS) accounts to promote competition in banking system and to offer alternative sources of savings to the population. The regulator said option of maintaining saving deposits or investments in IPS accounts could provide stiff competition to banks and hence forcing them to offer better returns on deposits. “This in turn would incentivise savings and help lower the currency in circulation,” it added. Moreover, the move would improve transmission of monetary policy changes to market interest rates, said SBP adding that over time this strategy would also diversify the government’s funding source, deepen secondary market of government securities, and facilitate issuance of corporate debt. “It’s a negative approach. If the banks really fail to compete with government savings, who is going to fund the all important private sector,” wondered Asfar Bin Shahid. Terming SBP’s decision of maintaining the discount rate at 12 percent as “rational”, the economist said aforementioned comment was “pretty odd” coming from governor of State Bank. “There are many other banks to offer better rates of return to the savers instead of inducing the savers to go and invest in government securities,” A.B Shahid said. The economist said regulator should, instead, have planned other savings with commercial banking sector. “Surely, SBP has effective communication with banking sector and can advise them to start offering better returns to savers rather than letting the government securities teach the banking sector a lesson,” Shahid said. Other analysts also appeared critical of SBP’s revelation that it had been encouraging investment in government securities. They argued that the trend as a side effect would decrease economic activity in private sector. They said the funds-starved government was sucking enough of the banks’ money to cater its non-productive budgetary needs and should now diversify its financing sources.
