The past few days have been the most volatile on all financial fronts, be it equities, exchange rate or interest rates. In Singapore, the 3 months SIBOR spiked to 2.23% due to “spillover from the US funding freeze and also the increase in risk aversion in the local interbank market”. The Monetary Authority of Singapore (MAS) had increased liquidity in the local money market in their effort to keep SIBOR in check.
With the collapse of Lehman Brothers, many were wondering if the Feds will cut their target rates to help keep credit flowing. The FOMC decided to keep rates at 2%.
I should be expecting a letter from my bank soon, telling me that the interest rate chargeable on my housing loan will be revised to 1.9%, with effect from September 1. This is a second time win for me, having my housing loan interest rate shaved by another 0.1%.
Predictions for the Fed Funds Rate tell us that it looks set to remain at 2% at least until October.
The 3 month fixing SOR has gone up 0.10% for 2 consecutive days. This is probably attributed to the rising US dollar (falling Singapore dollar). According to interest-rate parity theory, the interest rate has to rise to make up for a fall in the currency so that it maintains parity with another currency.
The Federal Open Market Committee (FOMC) has kept the federal funds rate at 2.0% – news that is not news since it was widely anticipated. What is more important to note perhaps, is that “in its statement, the Fed gave no sign that it plans to change policy in the foreseeable future.”
Excerpts from news sources
Found another article explaining Interbank Interest Rate Determination in Singapore. Published in 1999 by the Monetary Authority of Singapore (MAS), it stipulates that
Only changes in US interest rates or market expectations of future movements in the exchange rate have a significant impact on the domestic interbank rate.