When FD rate is below inflation…. for Malaysia

I heard on radio about a promotion for a Fixed Deposit with a local bank today, 19th April 2017. The advertised rate was 4.5 percent per annum. Well, at the same time, I read about the news in themalaymail that the annual consumer inflation hit 5.1 percent. This is the highest within the past 8 years. The only time this was higher was in November 2008, touching 5.7 percent. If both the fixed deposit and the consumer inflation rates continue as it is, our savings in bank would actually diminish on a yearly basis. By the time we retire 30 years ago, I dare not think what would happen to our retirement funds. This should hopefully be temporary. Extreme low inflation rates are not necessarily good news. This is also the reason why if the consumer price index continues to climb in the U.S, it is considered a positive sign for another round of rate increase.

UOB economist Julia Goh said that while the March inflation is notably higher than the historical average of 3 percent, it is unlikely be a reason for Bank Negara Malaysia to increase the rates. (I also personally believe that the economy needs an accommodative stance as world growth remains weak.) This is because moving forward, the global oil prices are expected to remain stable. She added,“My take is that it’s still cost-driven. Assuming oil prices remain fairly stable within the 50 to 55 dollar (per barrel) region, inflation will taper off in the second half.” (She meant this high inflation rate is unlikely to continue) The reason for this high number was because of the low-base effect and higher retail fuel prices compared to a year earlier. BNM expects the same as Julia. A “relatively high” inflation due to higher prices in the first half and then dipping in the second half. Overall, inflation should range between 3 – 4 percent in 2016 according to BNM.

According to www.tradingeconomics.com , Inflation rate in the U.S is 2.4 percent , Singapore is 0.7 percent, Japan is 0.3 percent and the United Kingdom is 2.3 percent. Actually these percentages meant that the fixed deposit rates are also low. Plus, it does seem that many countries are below Malaysia’s numbers. Well, the fixed deposit rates for these countries are low too. Here’s a full list of interest rates for reference. It’s by tradingeconomics. That is one key reason why other forms of investment may be more attractive too. Yes, when the rates remain low, the mortgage rates remain low too. The only issue? Sentiment may also be negative and thus reducing the likelihood that more people would look a new home. Happy reading and following.

written on 19 April 2017

Next suggested article: Survey: Property investment still attractive but recovery takes time

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