ISLAMABAD " The government on Wednesday increased an average interest rate of 1.6 per cent on national saving schemes to encourage the saving culture and ultimately reduce dependence on State Bank of Pakistan borrowing, which is inflationary in nature. The new rates will be effective from October 1, 2008 and old investors of national saving schemes can also get benefit by changing mode and paying nominal service fee. The government has not changed rates on Defence Saving Certificates. Similarly, the rates on prize bonds will remain the same. The minimum increase in interest rate is 1.44 per cent and the maximum raise is 1.7 per cent. New the average interest rate of Special Saving Certificates/Accounts is 13 per cent against the previous 11.25 per cent. People who will invest in this three years scheme will be entitled to get 12.8 per cent interest rate at the end of first six months and 14 per cent rate will be for the last half-year of the scheme. For five years Regular Income Saving Certificates the government has announced 13.3 per net interest rate as against the previous return of 11.52 per cent. Maximum rate is awarded to Bahbood Certificates, for widows, which is 15 per cent as against 13.56 per cent of the previous one. The government has banned new investment in monthly income accounts and permitted the old investors to complete the ongoing scheme. Finance Minister Syed Naveed Qamar last month announced that the government had decided to change the philosophy of financing of budget deficit. "We will not borrow from State Bank of Pakistan. We are moving towards non-bank borrowing." In addition to the budgeted decision of getting Rs 40 billion through national saving schemes, the government opted to accumulate Rs 100 billion more by issuing new instruments that would provide it a space not to borrow from the central bank. This borrowing is meant to finance targeted budget deficit of 4.7 per cent of the total size of the economy. However, the economists see real interest rate as a major challenge to the government positive decision of borrowing from non-bank sources. The central bank discount rate is 13 per cent and the inflation is 25 per cent, which makes the real interest rate negative 12 per cent. Due to low rate of return the saving culture could not take roots in Pakistan.