Interest Rates – Where Are We Going?
We live in a new world where some developed countries such as Switzerland and the Euro nations face negative interest rates. If I had written and submitted a paper on negative interest rates when I was an Economics student, I would have very likely received a Fail grade from my University professor. Simply because negative interest rates were unheard of and didn’t seem to ‘make any sense’ at that point of time.
But in the US, the Federal Board has moved in the opposite direction, raising the interest rates by 0.25% in December 2015. As long as the economy continues to grow and the employment rate improves, there will be more interest rate hikes to come. There’s bad news for those who have loans in Singapore, our loan rates tend to follow the US interest rates’ direction. In fact, our loan interest rates have risen since the beginning of 2015 in anticipation of the US rate hikes.
The not-so-bad news is that Singapore loan rates are expected to rise at a gradual pace in line with the US rate hikes. This is because the global economy is still in a recovery stage, especially for Japan and the European nations. For consumers or businesses that have debts, the gradual rise in rates gives them time to lower their debts downwards so as not be caught out by the higher debt costs. For those who are savers, your savings rates will likely improve over time.
Whether you are a debtor or a saver, you may be looking around the various financial institutions to refinance your loans at the lowest rates possible, or finding places to earn better returns from the current paltry bank deposit rates. We wish you all the best in managing your finances in this new period of rising interest rates.
Ernest Low holds an MBA from University of Liverpool and is the Head of Investment & Wealth Management with AXA Life Insurance Singapore. He has also written a money management book for kids called Starting Small Finishing Rich.