Monetary Auth of Singapore Lower interest rates not necessarily good
Straits Times senior correspondent Ovais Subhani wrote about the pressure on the central bank to allow the Singapore dollar to depreciate, as well as pressure on interest rates as Singapore deals with the economic costs of the Covid-19 crisis (Interest rates need to ease to help Singapore's economy, Feb 26).

The idea of lower rates helping struggling businesses has its drawbacks.

Since the financial crisis of 2008, the US Federal Reserve has been keeping interest rates at close to zero, coupled with quantitative easing, which in theory would make borrowings cheaper and stimulate growth. Many central banks around the world did likewise.

In reality, interest rates were already so low that it did not make a significant difference for businesses. Instead, what happened was that liquidity found its way to the stock and real estate markets, putting money into the hands of the mostly better-off.

The world ended up with sluggish growth but red-hot equity and property markets. In the case of the latter, what resulted was higher rentals and higher business costs, which were then passed on as higher cost of living for the average worker.

If we are faced with the 7 per cent to 8 per cent interest rates prevalent in the early 1980s, then I agree that cuts of a few percentage points will have a significant impact for businesses. However, as bank interest rates are already close to zero, I doubt any further cut will be effective.

Peh Chwee Hoe

Source: https://www.straitstimes.com/forum/lower-interest-rates-not-necessarily-good

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