Rate cuts on the horizon


The 3-Month SIBOR has dropped a notch from 0.44% to 0.31%, bringing it lower than SOR once again. SIBOR-pegged loans are now more attractive than SOR-pegged ones. This is also partly due to the absence of SOR-pegged loans currently being offered. Banks probably withdrew them after being spooked by the negative SOR back in August.

Interestingly, the 1-Month SIBOR maintains at 0.31%, matching the 3-Month rate, which makes for a rare yield curve profile (as seen above). On the other hand, the 6-Month SOR has been lower than the 3-Month SOR since August (currently 0.363% vs 0.402%), signifying an expectation that the 3-Month SOR may possibly fall some time down the road.

The trouble in Greece and Italy this week ignited a fresh flight-to-safety, resulting in the USD/SGD surging back to 1.29 after having fallen to 1.26 just recently. The crisis became the excuse for rate cuts and stimulus measures. However, despite the crisis, rate cuts and the rise in USD, oil price remained stubbornly high. I somehow doubt that the “confidence” in attaining a resolution of the Eurozone debt crisis is the reason behind the high oil price. Rather, as an analyst in the article puts it, oil price is in a “highly unstable equilibrium”. In other words, it is a supply and demand problem.

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