One step forward in my quest on what moves interest rates – interest rate parity. Simply put, this theory states that
the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.
Since we are often told that SIBOR tracks the Fed Funds rate, i decided to get down to prove this to myself. Here’s the comparison chart.
Since fixed rate home loan rates are rarely published online, i decided to do a survey in person. I went to a bank i have been to five months back and found out that indeed the 1 year fixed rate package is now at 3.68% as reported. The last time i was there it was 2.68%, a whopping 1% increase!
The fixed rate package scheme is a tricky business for banks. Banks will have to make a good guess as to what interest rates will be like in 2 or 3 years’ time.
Every home owner who cares about how much monthly installment and interest they pay should be interested to know, what moves interest rates? Specifically, what determines the home loan rates here in Singapore? It is often said in news articles that Singapore rates track the United States Federal Reserve rate. That almost seem like too easy an answer. Fine. The obvious question to ask next – so what moves the Federal Reserve rate?
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: