09 March 2005

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Reduce interest rates
The present economic climate is difficult. Consumer confidence is fragile, spending power is down, personal debt is spiralling and retail sales are falling. In short, life is getting tough. There is a growing feeling of gloom. Behind this background, local banks declare their highest profits. The announcement of the banks bumper profits has startled many people struggling to make ends meet under very difficult circumstances. Equally concerned are the numerous companies operating in very difficult conditions made worse by high interest servicing dues.
The privatisation of banks has been a positive development, leading to leaner work practices, increased banking activities and a full focus on the bottom line. It may, however, be time to reflect upon whether, given the prevailing economic situation, banks too should lend a helping hand to revive the economy. It is of course debatable whether a privately owned bank should in any way be expected to help out in difficult times. At the heart of financial difficulties experienced by individuals and companies are the high interest rates being charged by local banks, made all the more onerous when compared to the extremely low interest received on savings accounts.
A further burden is the increased charges for the many services offered by the banks including higher charges for transfer of funds, printing of statements, use of safe deposit facilities, penalties for dishonoured cheques, charges on use of credit cards and payment by standing orders. The customer is being charged more for all these services.
Local banks must appreciate that they are operating in a very small market where normal market competitive rules rarely surface to the benefit of the consumer. The banks should reconsider the interest rates they are charging. Savings could go a long way toward encouraging their customers to spend more. In so doing the economy will be given a boost and the foundations will have been laid on which to kick start the economy. A fall in interest rates would be equally beneficial to companies, many of which are presently cash strapped leaving them unable to reinvest in their own business.
Reviving the economy is all about leaving more money in people’s pockets. High disposable income keeps economies buoyant. To date high interest rates, introduction of new taxes and higher government induced costs are all playing their part in reducing disposable incomes. Addressing these issues could play a part in catalysing the economy.
Consumer spending is also linked to a belief in a better tomorrow. Confidence inspires spending - buying today is also linked to the certainty of earning it tomorrow. This confidence in the future is on the wane, too many people are coming to terms with the reality of a lowering standard of living triggered by increased utility charges. All these increases are taking their toll. There is a genuine belief that if the economy does not take off, the lowering of living standards will become inevitable.

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