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PM’s adviser opposes any cut in savings certificate interest

Star Business Report
Prime Minister s Economic Affairs Adviser Dr Mashiur Rahman yesterday opposed any reduction in the interest rate on savings certificates and said it would affect small savers.
"Small savers invest in savings certificates because they find die instrument risk-free." said Rahman at a seminar on "Promoting growth and stability: Challenges facing the monetary policy' stance" organised by the Bangladesh Institute of Development Studies (BIDS) at its office.
He said the investors in savings certificates include elderly women --many of them are widows and retired government officials.
Rahman, a former top bureaucrat. made the observations follow-
ing some speakers' demand to cut the savings certificate interest rate. They argued that banks might face a deposit shortage for offering relatively low returns.
The interest rate on a savings certificate is 12.5 percent, which is only 8.5 percent for bank deposits.
"Savings certificates are no problem. Banks can use variable interest rates to offset any impact," the adviser suggested.
Ziaul Hasan Siddiqui, deputy governor of Bangladesh Bank, said the national savings instrument does not compete against bank deposits. BB Governor Dr Atiur Rahman chaired the seminar attended by senior economists.
The adviser emphasised the need to conduct a survey to understand
how the recipients are using remit tances. He said his perception is, a large part of remittance is spent on land purchase and living costs.
He ruled out any immediate fallout from excess liquidity created by poor investment demand.
But he said the central bank should prepare to deal with any rising demand in future when the economy would recover.
Dr Atiur Rahman said monetary policy alone could not solve all problems. "Coordination between different policies is needed to have more benefits," he added.
"The agriculture sector needs more investment. Much of the demand remains unmet," he pointed out.
The central bank governor also stressed efforts to drive internal
demand to cancel out external shocks. "Agriculture can play an important role in creating internal demand."
Dr Mahabub Hossain, executive director of nongovernmental organisation BRAC, said commercial banks need incentives to bankroll the agriculture sector.
Prof Mustafizur Rahman, executive director of Centre for Policy Dialogue, emphasised a proper exchange rate management so that no party is hurt.
Earlier, Mustafa K Mujeri, Zaid Bakht and Monzur Hossain of BIDS presented a paper on the seminar theme.
Dr M Asaduzzaman, research director of BIDS, presented a paper on monetary stance and agriculture credit.