14 July 2014

0.25% increase for Malaysia OPR. When is Singapore turn?

Malaysia Central Bank (Bank Negara) announced for 0.25% increment of OPR last week. Maybank Malaysia was the first bank to announce the increase in base lending rate to 6.85% from 6.6% previously and 0.15% increase of saving rate.

This is not surprise to most people as Malaysia is now in negative real interest rate environment (which means that inflation rate is higher than interest rate now). If you are a saver, you may figure out much later than the money you save in the bank is not even enough to support for the future living expenses. In Singapore, we have seen several aggressive campaigns run by the banks which includes fixed deposit rate of up to maximum 3.0% with terms and condition apply. Now everyone is waiting for the US FED to increase the interest rate targeted earliest by beginning of next year.

To me, increase in interest rate means that the government is trying to combat with higher inflation rate environment. It could lead to an equilibrium where the hot money attracted to the country may increase the currency conversion rate and harm the exports business. There will be lesser borrowing activities and the private sectors may reduce the pace of expanding business via external financing (e.g. from banks / financial institutions etc).

While Malaysia and Singapore having similar problem in hiking home debt ratio, the way that they deal with it is a bit different. Singapore focused more on property cooling measurement as well as personal loan restriction by increase the down payment of private cars to 50% as well as introducing total debt servicing ratio (TDSR) which combine all the loans to individuals (e.g. personal loans / credit cards / car loans / mortgage loans etc) to 60% of total income before they could borrow more to finance home purchases. Since then, Singapore property market is in the downtrend which is expected to end by next year.

Malaysia tried to limit the third real estate purchase by introducing at least 30% down payment as well as the RPGT of 30% for first 3 years and 15% for fourth and fifth year. Since then, Klang Valley property market was in the normalization stage while the hot spot was in Iskandar Malaysia. With the introduction of 5% GST starting next year, many buyers / investors rushing into the property market in the hope to make a good deal before they have to pay for additional cost due to the GST implementation.

Although Singapore government normally use monetary policy to combat with inflation, but I personally think that Singapore would follow U.S. step to increase the interest rate to keep their currency in flavor against USD. Hopefully we could have a clearer picture by end of the year.


  1. Well, your blog is very informative and worth reading. The government tries to control inflation by increasing the interest rates and applying more personal loan restrictions. However, if the interest rates are high, currency rate may increase and export business can get harmed, but it is essential to control the inflation rate for better economical conditions. For information related to personal loans in Singapore, visit http://www.quickcredit.com.sg/loan-services-singapore/personal-loan-in-singapore

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