Wednesday | 15 January 2025 | Reg No- 06
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Wednesday | 15 January 2025 | Epaper

Savings dilemma — A challenge to monetarist view

Published : Friday, 24 February, 2017 at 8:09 PM  Count : 339
Haradhan Ganguly
One of my former students named Salam once wanted to know from me what might be the end results of the situation that induces apathy towards saving in society or in economy. My answer was: just wait and see. My question is simple. Is monetary management the only determinant of the entire macro economy of Bangladesh? Our economy, typically a non-monetized one, does not always tell us that two plus two equals four. Imbibed with quantitative assessment, some over enthusiasts are waging onslaught on the rates of interests both of banks and saving tools, throwing the future question about national savings into dilemma. Do they dream of an economy where savings will be less prioritized and they will be able to keep up the other pertinent variables of macro economy flow to reach the goal of growth target? Do they think people are helpless finding no other institutional alternatives than to save in banks even at zero interest (autonomous savings)? Do they think over consumption expenditures or extravagancies would bring in welfare in the economy at the last process of the end of the tunnel? Mind it our economy does in no way resemble the US economy where strong and pervasive nature of social safety nets give answers to all helplessness. So robust deposit growth with banks at sliding interest or the news that Tk  4 thousand crore  or even more are left idle in the banks' vaults are not an encouraging message. That they are not finding ways for investment is a one-sided explanation. Ultimately its synergies would fall on savings and consumption expenditures and on employment. Those issues must come in the ambit of discussion but our enthusiastic monetarists are blind to those, whereas, we need a holistic approach.
Do they challenge our opinion that the sliding interest rates in Bangladesh would impair the nation's capital stock in the long run and it is largely determined by its national savings rate? However our sliding deposit rates alarmed many economists who don't believe that monetary management is the only panacea. A drop in deposit rates and rates of national savings instruments would encourage dissavings in the long run leading to creation of extravagant cultures. A nation with high savings has a rapidly growing capital stock and enjoys a rapid growth in its potential output. When a nation's saving rate is low, its equipment and factories become obsolete and its infrastructure begins to rot away. This is the version of Samuelsson and Nordhaus. If monetarists think savers would turn out to banks only for safety sake, then this perception is to be eroded soon. Instead economy will bear the brunt of exigency over consumption expenditures. Small savers would see their doomsday. Questionable foreign capital would occupy the space of internal capital mobilization and accumulation. Banks and other financial institutions would never turn round to reforms which call for achieving efficiency. Such a situation occurred in USA in 1980s and 1990s where consumption behaviour did tend to be stable over time, the personal saving rate dropped sharply.
So when Bangladesh Bank (BB) tells us that bank deposits maintained a robust 13 per cent growth year on year in last December, despite declining interest rates, we see a picture that depicts the helpless state of savers in our growing economy. Bankers and analysts attribute this to a lack of popularity of alternative investment tools available in the market. As if all savers are turning into businesses. There are no powerless poor, incapable widow, defenceless retired persons and vulnerable divorced women among the savers. We are not saying deposit rates ought to be subsidized. Never. Strict implementation of reform programmes and efficiency in the running of administration of banks and control of corruption could make banks do business without declining rates. The spread could be squeezed. Rather BB thinks the ease of converting deposits to cash and its safety encourage people to park their money in the banking system. We say this is not at all representative view of BB. Staunch monetarist, the former chief economist of BB, Biru Paksha Paul saw the matter in a more excuse way, said people living in the rural areas are not aware about other investment tools, including government saving certificates. So they keep their money with the banks (a media report). Moreover a part of remittance that flows through non-banking channels also reaches the rural people and is saved as deposits and interest income is not their concern. How funny it is. Rural people cannot differentiate profit and loss.
Total deposits stood at TK 908, 864 crore at the end of December 2016, up from TK 803,511 crore in the same month of 2015 according to data from BB. The weighted average interest rate on deposits came down to 5.22 per cent in December from 6.34 per cent in the same month a year ago. Among the local banks, 12 are offering an interest rate on deposits of less than 5 per cent, while inflation stood at 5.52 per cent as of December last year. These banks are Agrani, Islami, the City, IFIC, UCB, Pubali, Uttara, Eastern, Prime, Dutch-Bangla, Trust, Brac and ICB Islamic Bank. Dutch-Bangla is giving the lowest rate of 2.69 per cent on deposits. Among the 9 foreign banks, eight are offering less than 5 per cent on deposits according to BB sources. Huge liquidity is responsible for pushing the deposit rate down, this perception is not totally right. Alarming increase in non-performing loan and default culture be the major issues for sliding rates on deposits. The banking sector has idle money worth TK 4,000 crore according to the latest statement of BB. But the amount of excess liquidity is above TK 1, 00,000 crore, most of which is invested in treasury bills and bonds. Some bankers opine, people don't understand the bond or capital markets. So they keep money with the banks. But "burnt child dreads the fire". One after another shocks in the stock market are eroding the confidence of people. Too much speculative character of stock market and hidden unscrupulous manipulation make the stock market distorted. Private commercial banks experienced substantial growth in deposits of 12.84 per cent in December 2016, compared to 5.93 per cent in the same period of 2015, despite sliding interest rates. Deposits at the state banks grew 12.84 per cent year on year in December. The average deposit rate of state commercial banks fell to 5.13 per cent in December from 6.38 per cent in the same month of the previous year. Declining rate should not go down beyond the inflation rate. Banks should explore a variety of avenues for investments and particularly in rural areas and should come out of the culture of defaulting and restore governance. Only this would act as dent to sliding deposit rates. Only the monetarist view and efforts will serve partial.r
Haradhan Ganguli is a freelance contributor and Secretary, United Nations Association of Bangladesh (UNAB)
Email: gharadhan@gmail.com




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