Govt raises profit rates on national saving schemes

• Govt revises rates upwards to absorb benefit of a boost in its income from PIBs.
• Analysts believe recent surge in cut-off yields may not go down well with equity market.
• The new rates came into effect from Friday (March 25).

KARACHI: In order to absorb the benefit of a boost in its income from the Pakistan Investment Bonds (PIB), the government has increased the rate of profit on various national savings schemes, The News reported.

The new rates were effective from March 25, 2022 (Friday).

The Central Directorate of National Savings (CDNS) — which works under the Ministry of Finance — announced on Thursday an increase in the rate of profit on the Pensioner Benefit Accounts, Behbood Saving Certificates, Regular Income Certificates, special savings accounts, and Defence Certificates.

Meanwhile, analysts believe that the recent surge in cut-off yields may not go down well with the equity market as a jump in the yields of alternative instruments such as national saving schemes could make the capital market look less appealing to investors.

According to a statement issued in this regard, the rate on Regular Income Certificates has been increased by 84 basis points (bps) to 11.04% per annum from 10.20%, while on Defence Saving Certificates it jumped from 10.32% to 10.92%, showing an increase of 60bps.

Read more: Rupee closes week at Rs181.78 against US dollar

The rate of returns on Special Savings Certificates has been increased by 100bps from 10% to 11%. Behbood Savings Certificates, Pensioners’ Benefit Account, and Shuhada Family Welfare Account rates were jacked up to 12.72% per annum from 12.24% earlier, up by 48bps.

Meanwhile, profit rates on saving accounts remained unchanged at 8.25%.

The government last week raised Rs193 billion by auctioning fixed-rate PIBs, with the cut-off yields on three-, five- and 10-year papers trending upwards.

The yield on the three-year PIB rose by 115bps to 11.85%, five-year paper 100bps to 11.74%, and the rate on a 10-year paper jumped 88bps to 11.74%.

The State Bank of Pakistan (SBP) said it sold Rs54 billion worth of three-year papers and Rs80 billion of the five-year, and Rs59 billion worth of 10-year papers. The government rejected bids for 15-year and 20-year PIBs. Moreover, no bids were received for 30-year PIBs.

In February, the government reduced profit rates on different instruments of national saving schemes, primarily in a protective reaction to near runaway inflation.

This reduction in profit rates followed the inflation based on Consumer Price Index (CPI) touching 13% — the highest ever in two years. The rising inflation has eroded the purchasing power of fixed-income groups such as salaried and pensioned ones.

The national saving schemes aim to promote savings and the development of ample savings accounts.

All the certificates under the scheme are tailored for all types of investment. They are appropriate for investors interested in regular savings, fixed income, retirement planning, etc.