2009 Outlook

2009

It’s been a busy 2008 year end for me, leaving me little time to catch up with reading and writing. Before you know it, we are in 2009 already. I thought i had better get a sense of what to expect in the coming months.

SIBOR inched up to 1% while SOR swung up to 1.5% over the past few weeks. Given that the 3 month Libor rate has been slowly declining and SIBOR is hovering around 1%, the volatility in the SOR could be attributed to fluctuations in the USD/SGD exchange rate, where USD is forecasted to gain over SGD in the coming weeks or months. MAS is expected to “flood the local money market with liquidity as it prepares to let the currency weaken when it reviews policy in April”. Meanwhile, the Fed’s impending purchase of up to $600B of mortgage securities is likely to bring mortgage rates in the US even lower. These developments – lower USD borrowing cost and higher USD/SGD exchange rate – might just nullify each other and keep interest rates in Singapore at current levels.

Deflation vs Inflation: The Fed is said to be confronting a “two-headed dragon” of deflation and a return of 1970s-style inflation”. We have seen deflation happening over the past few months with prices of assets and commodity coming down, but a reversal could be on the way as OPEC cuts oil production. Perhaps far more worrying than that is the soaring money supply which inevitably leads to inflation.

Here’s wishing every reader good foresight for the year ahead, and a happy new year!

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