Real Issue

April 24, 2007 (LBO) – High negative real rates paid to savers have seen deposit growth at Sri Lanka’s National Savings Bank plunge to a record low in 2006, the bank’s latest accounts show. NSB said it was the first state sector enterprise to present its annual report to the public.

NSB’s deposits grew by only 4.8 percent in 2006, with real interest rates turning sharply negative, as inflation shot up to 19.3 percent.

In 2006 savings rates were kept at 5 percent while 12 month fixed deposit rates were raised from 10.00 to 11.00 percent.

“We decided not to engage in a rate competition with the rest of banks,” Chairman, Upali Gunaratne said.

NSB’s head of finance, Hennayake Bandara, said the decision to keep rates low was a ‘short term’ strategy and was not influenced by outside pressure.

In 2006, the increase in new deposits plummeted to 9.8 billion rupees, compared to 22.2 billion a year ago, as the gap between the 12-month fixed deposit rates and 12-month point to point inflation widened to 9.3 percent from a neutral position in 2005.

Sri Lanka’s inflation fell in 2005 with tsunami aid receipts and a debt moratorium reducing the need to print money to bridge