May 27, 2015

    3-month Sibor down 20% from last month's high

    THE key three-month Sibor or Singapore interbank offered rate has fallen almost 20 per cent from the year high of 1.027 per cent on April 9.

    Yesterday, the three-month Sibor, which is used to price home loans and other consumer lending, stood at 0.830 per cent.

    But this is likely to be a brief respite for home-buyers, as economists think the United States dollar strength is intact, and when the US hikes interest rates in the second half of this year as expected, local interest rates will zip higher again.

    Another local interest rate, the three-month SOR or swap offer rate - typically used to price corporate loans - has fallen even more.

    It is down some 32 per cent from the high of 1.132 per cent on March 24.

    On May 22, the SOR, which is more volatile, was quoted at 0.767 per cent, which is slightly higher than this month's low of 0.710 per cent on May 18.

    The jumps in both the Sibor and SOR from last December to their respective peaks this year were on the back of a rally in the greenback, which rose to a high of $1.39 per US$1 on March 18.

    After the Monetary Authority of Singapore (MAS) left monetary policy unchanged in its review last month, the Singapore dollar recovered somewhat to $1.32 on April 30. Since then, the Singapore dollar has begun retreating again and was quoted at $1.35 yesterday.

    Said DBS Bank economist Eugene Leow: "I actually thought that Sibor and SOR were too high for a while. The recent pullback is probably best thought of as a normalisation from overly high levels."

    Speaking about the SOR movements, Victor Yong, a United Overseas Bank rates strategist, said that the initial correction in SOR was driven by the downgrading of expectations over MAS easing last month.

    "Speculative currency positioning drove the initial overshooting and was similarly responsible for the subsequent correction when MAS kept policy unchanged," said Mr Yong.

    "Domestic funding demand and the expectation that the US Federal Reserve will start their rate normalisation this year will keep SORs supported into the end of the year," he said.

    UOB's year-end three-month SOR and Sibor are at 1.4 per cent and 1.3 per cent respectively. Its year-end US dollar/Singapore dollar forecast is 1.4, Mr Yong added.

    OCBC Bank's Selena Ling said that US Fed chairman Janet Yellen is still reiterating that a lift-off later this year is likely, so the weak US dollar may not last past summer.

    On Friday, Dr Yellen said that she expects to hike interest rates "at some point this year".

    "We are still keeping our year-end three-month Sibor 1.35 per cent forecast for now," said Ms Ling.