Litmus Test

Now the people can opt to chose if they want the EPF contribution to remain at 11% or reduced to 8%. This move is a litmus test to decide how the interest rate should move come January 2009. As it is now, the Government just do not know how to measure actual public consumption. Inflation rate (“CPI”) is purely artificial since basket of goods is not reflective of actual price movement, whilst consumer sentiments and business conditions index do not explain much about private consumption. This explains why Bank Negara Malaysia (“BNM”) keep holding the interest rate since the economic chaos started. BNM simply cannot decide since they are unable to gauge what is happening on the ground. Hence, as a solution, the Government throws the ball back into the public’s court.

Come January 2009, based on the new EPF 8% take-up rate, the Government will be able to assess if the public wants more money in the system or not. If the take-up rate of the extra 3% of EPF saving looks overwhelming, then BNM may reduce the interest rate to spur public consumption. Good for the banks too, since banks can loan to each other at a much cheaper rate. But your savings will suffer. So, you decide.