Sibor and SOR hits new low

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At the closing of this week, the 3 month and 6 month SOR fell to an eye-popping 0.68% and 0.74% respectively, the lowest levels since i started tracking, while the 3 month Sibor tumbled to 0.81%. The fall in the 6 month SOR is especially noteworthy, as it convincingly fell below 1%. This could possibly be taken as a signal that SOR will remain subdued for the next 6 months.

These development could be a direct result of deliberate effort on the part of central banks around the world, especially the Federal Reserve, to lower rates, to make available more money in the hands of people for spending. It was announced earlier this week, Fed, Treasury offer US$800b more to credit markets and in similar fashion, EU launches US$259b stimulus package. Quoting from the news article: “The initiatives call for up to 600 billion dollars in Federal Reserve purchases of mortgage securities, and a separate 200 billion dollars for asset-backed securities to help get credit to consumers”. What this really sounds to me is writing off bad debt and giving people money to spend without having to work for it. The German Chancellor, Angela Merkel, holds a more cautionary stance and warned “against a ‘race’ between European states over the size of their stimulus measures”. Europe demonstrates that they are more conservative as “the EU package remains dwarfed by similar measures taken in the United States”. So far, U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit.

The price to pay for increasing money supply is of course inflation and devaluation of the currency. Here is a prediction chart (take with a pinch of salt) suggesting that the SGD/USD exchange rate will peak in Jan 2009 and fall back to previous lows by Jun 2009. Coming back to home loans, what all these means is, do take advantage of the low interest rates now if you can, while at the same time, keep a close watch of economic trends, such as exchange rates whereby interest rates (relative to elsewhere) *usually* move in tandem with the currency value. Remember to plan at least 2 months in advance if you wish to do refinancing or re-pricing.

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