Source : Business Times - 30 Sep 2008
I REFER to the article ‘Short-term rates leap to about 2%’ (BT, Sept 27). The article’s tone refers to interest rates rising as if it were a bad thing, focusing on borrowers being ‘hit’ and ‘hurt’.
But for every borrower there is a depositor and the article should also mention that long-suffering savers, who have been plagued by low interest rates for many years, stand to benefit. With inflation threatening to be 6 per cent or higher, savers will still have to endure savings deterioration even at rates of 2 per cent.
Being an investor, I appreciate that there should be a fair cost to money. Although I do not expect savers to beat inflation by being pure depositors, there should be decent compensation for loaning out one’s hard-earned savings through the banking system. Several countries have raised their interest rates to protect their population against inflation.
Sustained low interest rates can cause even the most committed saver to embark on risky investments or become unwitting speculators in exotic financial instruments promising higher rates. Experts have pointed to the prolonged low interest rate environment in the US as the cause of a real estate boom which has now resulted in a financial crisis.
Interest rates should reflect a genuine equilibrium between savers and borrowers, and should not be kept low for the benefit of borrowers at the expense of savers. Only in certain circumstances where a threat of systemic failure could cause interest rates to spike sharply to, say, over 10 per cent, should there be concern.
Otherwise, interest rates rising should not be considered as a solely negative thing. Over a decade ago, fixed deposit rates were over 4 per cent and the economy was still running at a good growth rate.
Ang Hao Yao
No comments:
Post a Comment