Debated in Parliament on 13 Sep 2022.
Assoc Prof Jamus Jerome Lim asked the Minister for Manpower in light of the consistently high interest rate spread between lending and deposit rates, with limited pass-through of global central bank rate hikes to domestic deposit rates, whether the Ministry will consider (i) a one-off adjustment to CPF Ordinary Account (OA) interest rates that better reflect the inflation premium already captured in lending but not deposit rates and (ii) a different formula for CPF OA rates based not only on average deposit rates, but also on lending rates.
The commercial banks' lending rates take into account factors that include the possibility that the loans may go bad and not be repaid. Therefore, the OA interest rate is not comparable to banks' lending rates because the OA principal and interest are guaranteed by the Government.
In response to rising inflationary pressures, the Monetary Authority of Singapore (MAS) has tightened its monetary policy four times since October 2021. The stronger exchange rate has helped to dampen imported inflationary pressures. To help Singaporeans cope with rising inflation, MOF has also announced a $1.5 billion support package in June 2022. Instead of a one-off adjustment to CPF OA interest rate, the package provides more targeted and immediate relief, especially for the lower-income and vulnerable groups who are disproportionately impacted by the effects of higher prices.
Even though the OA pegged rate remains at around 0.09%, the Government is paying up to 3.5% on the OA balances due to the 1% extra interest and the statutory minimum of 2.5%. Members can also transfer their OA monies to the Special or Retirement Account to earn up to 6% for members aged 55 and above, or up to 5% for members below 55.
That said, our policies are not static. We are watching the interest rate environment closely to ensure that the OA interest rate peg remains relevant in the prevailing operating environment whilst taking into consideration the longer-term outlook.
PAPERCUTS