Forum: Time for Govt to introduce inflation-linked bonds

With Singapore’s core inflation hitting 5.3 per cent in September (Singapore’s core inflation climbs to 5.3% in Sept, Oct 26), maybe it is time for the Government to introduce inflation-linked bonds to help better protect the savings of Singaporeans.

Current Central Provident Fund Ordinary Account and Special Account interest rates are unable to keep up with the rise in inflation. And even if a Singaporean were to invest his savings in the latest one-year Treasury bill, which yields 3.72 per cent, or the two-year Singapore Government Securities bonds, whose yields fluctuate between 3 per cent and 4 per cent, he would still see an erosion of his savings as real returns are negative.

Corporate bonds, while able to provide a higher yield, are not a straightforward alternative investment option as many Singaporeans do not have the know-how to analyse such bonds. And other than a handful listed on the Singapore stock market, most corporate bonds are generally not accessible to the average retail investor.

Equities are risky and are currently under pressure due to a rising interest rate environment. This leaves little room for a Singaporean to protect his savings.

Many major financial centres have already introduced inflation-linked bonds. For example, there is the iBond programme launched by the Hong Kong government that provides a three-year inflation-linked bond.

In 2012, the Government did look into the feasibility of inflation-linked bonds. Maybe it is time that it examines this again.

Jarrett Choo Hong Li

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