CPF rate pegs being watched to ensure they ‘remain relevant’ in rising interest rate environment: MOM

THE government is watching Central Provident Fund (CPF) interest rate pegs to ensure they “remain relevant in the prevailing operating environment”, said Minister for Manpower Tan See Leng in a written parliamentary reply on Tuesday (Jul 4).

This is while taking into consideration the longer-term outlook, he added.

Responding to Member of Parliament Saktiandi Supaat’s questions about the CPF Ordinary Account (OA) rate of 2.5 per cent, Dr Tan said: “We are aware that the OA pegged rate has remained relatively stable amid the current elevated interest rate environment.”

The government is “watching this closely” to ensure CPF interest rate pegs stay relevant, and will continue to review CPF interest rates periodically, he said.

Saktiandi had asked why the CPF OA minimum interest rate is pegged to the average of the three local banks’ savings and deposit rates over a three-month period. He also asked if the reason was still “compelling”, given the current interest rate environment and the range of interest products available.

Dr Tan said that CPF rates are pegged to “returns on investments of comparable risk and duration”. The OA peg is chosen because OA savings can be withdrawn at any time for home purchases, servicing mortgage loans, or other specified purposes such as investment.

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Other interest-bearing products, such as deposits with conditional interest rates, are not comparable with the OA, he added. This is because they are contingent on customers fulfilling other criteria such as credit card spending or crediting of salary.

Saktiandi also asked if the concessionary Housing and Development Board (HDB) loan rate could be delinked from the CPF OA rate.

Dr Tan did not address this directly, but said: “As HDB concessionary loan rate is pegged to the CPF OA interest rate, any changes to the OA interest rate need to be carefully considered, given the implications on HDB borrowers.”