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Room for rates to go lower when there are lots of liquidity

If we have a lot of spare cash, we will either save it in the banks as fixed deposit and gain 2% from it. Maybe more, maybe less. Look at the image below for latest rate as at 26th May 2020 from Maybank. Or we can choose to invest into dividend stocks for the potential dividend returns too. If we leave the spare cash untouched stored under our bed, the value will depreciate over time because of inflation…

When banks have a lot of excess funds, they will need to lend it out. Else the banks gain nothing from the money but still have to pay for the cost of funds. In this case, if the funds came from fixed depositors, they will need to pay the fixed depositors 2%. If the banks could lend it out to home loan borrowers at 3.5%, then they could gain profits from the funds instead. When the banks do not have a lot of funds to lend out, then they may either get more funds in or they limit the lending through higher interest rates.

Want to know what’s happening to most advanced economy in ASEAN?

Article in Singapore may potentially have negative interest rates soon. Singapore’s current overnight borrowing rate was less than two basis points above zero on 19th May 2020 and this was down from the highest point of 1.68% for the year in January 2020. Monetary Authority of SIngapore promised to provide sufficient liquidity to the financial system to cope with COVID-19 induced crunch.

Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore said, “The rates effect is a possible by-product of MAS operations meant to ensure sufficient” liquidity, said But, it’s “certainly not an intent.” Strategists at DBS Bank Ltd., including Eugene Leow wrote in a research note, “If Singapore dollar liquidity becomes too flush, relative to the U.S. dollar, the financial sector may be willing to swap Singapore dollars for U.S. dollars at very low Singapore dollar interest rates.” Please refer to the full article for more reading here: Article in

With nations slowly reopening their economies, perhaps we will see a better number where GDP growth is concerned. However, monetary policies as well as fiscal policies by the government wherever possible will be needed. Businesses are definitely not confident to invest even if the rates remain low. They will need that extra boost and when the wheels of consumption turns, then the sentiment may return.

By the way, we will have to leave with the COVID-19 in our midst for some time more. The fastest COVID-19 vaccines is only at initial human trials currently. There is still a long way to go before it can be certified to be effective and safe and then there’s the manufacturing bottleneck later on followed by logistical issues. Please practise social distancing and wear your masks. Keep the numbers low and do not join the statistics.

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Charles Tan The Founder The Writer Kopiandproperty
Charles Tan

Charles is Founder of He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.

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