Singapore interest rate roller coaster ride

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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.

Changes to the SIBOR directly affects home owners who have opted for loans pegged to it. The rise in SIBOR have resulted in more opting to peg their loans to the 12 months SIBOR. While this may protect them from further increase in the interest rate, it also prevents them from enjoying lower interest rates should it fall in the near future. SIBOR could decline to 1% and remain around that depressed level for most of next year.

Indicators are foretelling further cuts to the Fed Funds Rate as the US scrambles to make credit available. Economists argue that “besides lowering rates, the Fed may not have many options beyond further expanding emergency lending programs or creating new ones”. Asia’s central banks have started to cut interest rates, including Taiwan and China. Perhaps we will see SIBOR and SOR ease off more soon.

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