Depositors solely depending on interest income on bank savings will find it difficult to survive as their earnings will slip by half after cuts in interest rates this week, retired government servant B.N de Silva of Kandy told the Sunday Times FT.
He said they will have to borrow money for their day to day living. A former senior manager of a private bank, who wished to be anonymous, said that interest revenue helps to maintain the operation of many financial institutions. When the interest rate is cut, that means the income to those institutions is also reduced. Depending on the current economic climate, this can lead to cutbacks that may include discontinuing services to consumers, as well as job cuts.
With more people out of work, there is less disposable income to circulate through the economy. When interest rates are cut during a period of inflation, this can often lead to an increase in the problem rather than reduce it, he said. He added that private banks may resort to leasing rather than lending for their survival.
President of the Golden Key Depositors Association Anusha Emmert however said the decision will motivate the people to find alternate income avenues or jobs and this is good for the country’s economy. Some people who were totally dependent on interest income without doing any work will now have to seek new income avenues. Therefore more people even the rich and elite will contribute their share for productive purpose.
Citing her personal experience with GK depositors, she said, that the loss of income from low interest rates led most of them towards new employment. |
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