Sg Review
18 Jul 2008
"Singapore cbank dollar buying to depress money rates" - (Reuters, 15 Jul 08)
The headline in the quoted Reuters article may have escaped many readers - which is probably what the government and the central bank, MAS had hoped.
But what the government and the MAS have effectively done is to short-change Singapore citizens' and CPF members' (including Permanent Residents) funds compulsorily parked with the CPF Board by "artificially" depressing the SIBOR rates through "flooding the market with money".
How so? When the SIBOR rates are depressed, banks can borrow cheap funds from the inter-bank market, hence their interest rates to their customers (savings accounts and fixed deposit accounts) are also kept artifically low.
Since CPF members' rates are pegged to the average of the 3 local banks savings rates (which has been below 1% since time immemorial), CPF members have been short-changed for just as long.
Even though the Ordinary Account rate now has a "guaranteed" floor rate of 2.5% (the higher of 2.5% or the banks' savings rate), it is time for a change with inflation now rearing its ugly head.
Nowadays, with runaway inflation of some 6-7%, the 2.5% guaranteed rate is grossly inadequate to match the inflation rate.
And the government and the MAS (instead of helping out the already-struggling Singaporeans, no thanks to the Finance Minister who even urged employers to curb wage rise) are making it worse for the citizens by artificially depressing the SIBOR rates!
May I then propose to change the way the CPF members' rates are pegged to:
the highest of 2.5%, the inflation rate, the banks' rate, and GIC's returns minus 1% (to account for operating cost)? It is appropriate to use GIC's returns since they are managing the country's and the citizens' money, so whatever returns they generate from using the citizens' money should be passed on back to the CPF members.
Are you and your government up to the challenge - since you've been trumpeting (as GIC Chairman) that GIC's returns have been near the 8-9% level annually for the last 20 years or so?
Just as a aside: In the US, American citizens can "borrow" against their "CPF", the 401k in emergencies like unemployment, medical bills etc. (see link below) but for many Singapore citizens, not only can they not do so when they have no money in their banks (through unemployment or whatever), their "locked-up" money in the CPF is generating peanuts (government-engineered) while the government, having made use of it to generate healthy returns, is making it increasingly more difficult for members to "touch' their very own money with change after change to the CPF Act!
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