[Ahnya]

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If so, why is CPF CEO so afraid to hike OA interest rate to 3.5% ?

There is a fixed formula. 
You want to blame someone... go blame the banks,  and perhaps the thousands of ordinary people who go rushing for the promo FDs. As long as the banks refuse to raise their board rates for interest,  the resulting rate for OA will not rise.
The banks can take in enough deposits from the promos  , so they won't raise the board rates