S$ to fall?
From the headlines: “MAS may relax monetary policy due to declining inflation: analysts“ (CNA 24 Sep) and “Price rises slow to lowest in almost two years” (Straits Times 25 Sep) – it looks like a depreciation of the S$ is in the works.
inflation
SOR soars above 0.5%
SOR rises above 0.5% for the first time since June 2010, as the USD/SGD moves close to 1.3 again and LIBOR hit 0.54% on its continued steep incline, while SIBOR remains muted at 0.38%. The massive flight-to-safety from the Eurozone’s trouble pushes the US dollar higher as investors piled into Treasuries. This, the result of ECB’s stubborn unwillingness to print money, though, as widely expected, they did further cut rates by another quarter points to 1%.
Quantitative Easing
QE3
Probably by now, the term Quantitative Easing (QE) is familiar to most people, having been widely publicized in the media. It is the “tool” employed by a central bank to revive the economy, by printing money.The aim is to get money flowing and thereby get the economy going. QE also keeps interest rates low as banks are flooded with money to be loaned out.
SOR landed in all-time-low territory again
With the US bent on devaluating the USD and MAS allowing the SGD to appreciate, SOR was driven into its all-time-low territory again, coming in at 0.247% on 3 Nov 2010. Moreover, the Feds initiated a fresh round of measures to spur the US economy, keeping rates at 0-0.25% for an “extended period” and launching a new massive US$600 billion money printing exercise.
SOR does a V-turn after hitting bottom
SOR slid dramatically to 0.258% on Aug 23, arguably the historical low of all times, then sprang up again to above 0.3%. Incidentally, the 3-month USD Libor rate is also at 0.3% and has been falling and staying low. Exchange rate wise, USD/SGD has been stable at around 1.35 and probably did not play a big factor in the action of SOR.
Libor vs Ten Year Treasury Note Yield
As you can see, the two are somewhat correlated, with the Ten Year Treasury Note Yield (TNX) leading. Watch out for the recent rise of the TNX.
Fed drops rate to 1%
As was widely anticipated, the Feds have dropped the Fed Funds Rate to 1%. Rate cuts, coupled with other measures, seem to be gaining some traction at lowering LIBOR rates to which more than $360 trillion of financial products are tied.