Robbing Peter to pay Paul?
The Central Bank has further slashed the lending rates with effect from September 01. Lending rates have come down drastically since the UNF government took office and it is widely speculated that there could be further decreases in time to come.
The economy is on a good footing and this measure is aimed at giving a further boost to it, we are told. Survival of a country is dependent on economic growth and it is nothing but right for a government to explore all avenues to enhance the performance of the national economy. After all, it is exactly for this purpose that the UNF was voted into power though it seems to have got its priorities mixed up.
But as is known in the dismal science that is economics, such measures, which are a boon to some, come at the expense of many others. As for the slashing of lending rates, which may, no doubt, be more than welcome for the private sector as well as other borrowers, the corresponding decreases in the interests on the fixed deposits - which take effect on new deposits or deposits being renewed - have dealt a solar plexus punch to those who, out of their concern for the safety of their lifetime savings, have no choice but to deposit hard-earned money with banks.
For these people, especially the EPF beneficiaries, interest on their deposits is the only source of income. There are many others such as pensioners who supplement their meagre income with their earnings from fixed deposits. Tens of thousands of parents, too, have invested heavily in fixed deposits for the sake of their children’s future. A decade or two ago, they were able to earn a decent income by way of interest on their deposits - around 20 per cent was paid for certain categories of deposits. These reasonably high interest rates also helped keep unscrupulous get-and-run finance companies at bay as the people had a reliable alternative. Today, we see various finance companies offering very high interest rates which are too attractive for the people to resist.
The fixed deposit holders' plight is further aggravated by the soaring prices of essential commodities contrary to the rosy statistics put out by the Central Bank worthies. Pensioners and EPF beneficiaries will vouch for the fact that they cannot any longer afford drugs on which their lives hinge due to galloping prices which are beyond their reach. The same goes for food, electricity, telephone, gas, clothing, transport etc.
Equally unfortunate are those who are repaying loans in ‘equated instalments’ at the same old exorbitant interest rates. Most of them continue to pay interest at a rate of well over 18 per cent though the lending rates have come down drastically. The agreements signed at the time of borrowing may be cited by the banks in justification of this kind of ‘exploitation’. But the government, which has been kind enough to grant a pardon to tax defaulters and the banks that have been so generous as to write off ‘political loans’ to the tune of billions of rupees, ought to be considerate towards those who are coughing up the so-called equated loan instalments, and effect a reasonable reduction to the high interest rates they are reeling under.
The idea behind the lending rate reduction project is said to be to encourage the people to invest elsewhere so as to boost the capital market. But the question is whether the people who are who being targeted have the expertise and experience to switch over to investment in the Stock Market etc.
However, we don’t wish to question, at this stage, the wisdom of those who have prescribed the remedy at issue. It is too early to do so and we hope the remedy will be efficacious and the country will benefit. But it needs to be added that in trying to help the so-called engine of growth to pull, the government must also ensure the safety of depositors in the rear carriages. As for the decreasing interest rates on deposits, we hear tens of thousands crying in agony. It behoves the government to heed their anguished cry and ensure that depositors’ interests are also looked after.
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