The Swap Offer Rate (SOR) which i have been tracking has surged to 1.55 and 1.98 respectively for 3 months and 6 months fixing respectively. This is indeed alarming for those who have taken up home loans that are linked to SIBOR or SOR. How are interest rates going to move in the coming year? That is the million dollar question.
I thought i had better do some research to have a sense of bearing. First stop, what do analysts think? There are a few trains of thoughts:
- The Federal Reserve is unlikely to raise rates ahead of the election
- The Federal Reserve is unlikely to raise rates soon given the weak job and housing market
- The Federal Reserve will raise rates to fight inflation
There has been repeated talks by Federal Reserve representatives, including Ben Bernanke himself, that fighting inflation is going to take priority. This had quite an effect on the market, sending the dollar, short term bond yields and also interbank lending rates higher in anticipation of a possible rate hike. The SIBOR and SOR is probably reacting likewise.
Many analysts however maintain that the Feds will keep rates at current levels until there is more evidence of economic stability. Meanwhile, India has raised its interest rates, and there is a possibility that ECB may raise rates.
So what does this mean for home owners? Probably a sigh of relief for now, at the same time a wake-up call to keep a very close watch on possible interest rate movements.