Parliamentary Replies
Published Date: 09 July 2012

Reply to Parliamentary question on impact of current Consumer Price Index (CPI) and low interest rates on Singaporeans and how to preserve the incentive for Singaporeans to save

Question No 424
Notice Paper No 160 of 2012
For Oral Answer

Date: For Parliament Sitting on 9 July 2012

Name and Constituency of Member of Parliament
Tan Su Shan, Nominated Member of Parliament


To ask the Prime Minister in light of the current Consumer Price Index at 5.2% and low interest rates resulting in Singaporeans who are nett savers and depositors suffering from savings erosion and yet having to pay more for goods and services, whether the Ministry has any plans to alleviate this situation and to preserve the incentive for Singaporeans to save by, for example, encouraging the issuance of Inflation-linked bonds for the retail market.

Response by Mr Lawrence Wong, Minister of State, Ministry of Defence & Ministry of Education, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Chairman, MAS

1   Ms Tan Su Shan asked about the impact of high inflation and low interest rates on Singaporeans.  Singapore's CPI-All Items inflation averaged 5.0% in the first five months of this year. This headline number includes imputed rentals on owner-occupied homes, which do not involve any expenditures by households. It also includes the sharp increase in car prices over the last year, due to the spike in COE prices, which also do not affect the average Singaporean directly. Excluding these two factors, inflation was 3.2% on average in the first five months.

2    Inflation is expected to moderate gradually in the second half of the year. Nevertheless, it is uncomfortably high, and is also higher than bank deposit rates.  

3   The current low interest rates on domestic bank deposits reflect the extremely low or near-zero rates in the US and other advanced  economies and very loose global liquidity conditions.  Unfortunately, interest rates are expected to stay low for some time, in view of the still fragile recovery in the major economies. 

4   The government is mindful of the problems such an environment poses to savers and depositors.  We are studying what can be done to help Singaporeans get better returns on their savings.

5   Apart from bank deposits, Singaporeans have substantial savings in the CPF.  In fact, CPF savings are the main source of retirement funds for low and middle-income Singaporeans.  CPF interest rates are currently much higher than bank deposit rates1.  This is especially so for the first $60,000 of a member’s balances, which currently earn an interest rate of 3.5% if it is in the Ordinary Account, and 5% in the Special, Medisave or Retirement accounts.  (Beyond the first $60,000, the interest rates earned are 2.5% and 4% respectively.) On average, over the past 10 years, the interest rate on CPF savings has exceeded inflation.

6   Ms Tan also asked about retail financial products that would help preserve Singaporeans’ willingness to save, in light of sustained inflationary pressures.  With the development of our capital markets, more investment alternatives are now available. Corporate bonds, for instance, provide higher returns depending on their risk profiles.  Singapore Government Securities are also more readily accessible to retail investors and have been traded on the Singapore Exchange since July last year.

7   Ms Tan also mentioned inflation-linked bonds, which allow investors to have returns linked directly to inflation.  MAS is studying the feasibility of such bonds. However, we have to recognize that market-pricing for an inflation-linked bond under the current very low interest rate environment could mean investors having to pay a large premium for such bonds.  Furthermore, investors will suffer a loss should inflation fall below expectations. 

8   For Singaporeans who do not have significant savings, it remains best to keep investments simple and conservative. Through the MoneySENSE national financial education programme, we seek to help Singaporeans plan for retirement and invest their spare savings prudently.


1   All CPF balances earn a minimum risk-free interest of 2.5 per cent guaranteed by the Government; with Special, Medisave and Retirement Account savings (set aside for healthcare and retirement needs) earning a guaranteed minimum 4 per cent interest until end June 2012. In addition, an extra 1 per cent interest is paid on the first $60,000 of a member’s combined CPF balances. These rates are significantly higher than the current low bank deposit rates.