World Children’s and Elder’s Day was celebrated on October 1 the world over. Sri Lanka also celebrated the day with events organized with State patronage. But it appears that the Government is not too keen to lend its ears to a burning problem faced by senior citizens -- the declining interest rates on savings.
Taking into account a cross-section of the pensioners in Sri Lanka, it could be seen that more than 90 per cent depend on the interest paid by banks on their savings accounts and fixed deposits. Most of them after getting their sons and daughters married, deposit whatever that is left from their EPF and ETF payments in the bank with plans to live a quiet life with the interest income or from their pension payments -- if they were public servants.
Most of those who were duped by Ponzi or pyramid schemes floated by unscrupulous elephants or let down badly by high-interest-paying finance companies such as the Golden Key Credit Card Company, were pensioners, who sought a higher rate of interest for their savings than those paid by banks or the well-reputed
Currently the Central Bank has reduced the interest rates to the lowest level possible with the result that interest rates on savings and loans have seen a drastic drop. According to the Central Bank, lower lending rates would spur economic activity in the country because people would borrow from the banks—and invest those funds in business ventures and on constructing houses -- in other words developing the economy so that the government could achieve its economic growth targets.
But still the growth rates remain extremely low -- though the Central Bank calls it moderate. Whenever interest rates had dropped consumption levels have increased temporarily boosting economic activity. In such a scenario we see more people importing cars -- thereby jacking up the government’s fuel bill—and spend on other imported goods and services. This in turn affects the trade balance and the balance of payment negatively. Then the government starts to jack up the interest rate to recover from this downturn. This cycle has taken place a few times and it is a puzzle why the Central Bank always opts for this unsustainable formula to enhance economic activity.
Getting back to the pensioners, they are currently feeling the pinch of the lower interest rates. They are not in a position to take a gamble and invest their hard earned money in the stock market or in an enterprise, where the risks are 1,000 times higher than putting their savings in a bank. Not many are able to become entrepreneurs or master investors at the latter part of their lives.
The expectation is that if the drastic policy action taken by the Central Bank to boost credit growth is not making headway, the monetary authority will reduce the policy rates even more. If this happens, the deposit rates would come down even further regardless of the
It is widely believed that a presidential election is just round the corner. Collectively, pensioners and their dependents are a formidable force that the government cannot ignore. So, the government may want to revisit their policies and address the issues faced by the pensioners who live on their savings.