Homeowners with home loans pegged to the Singapore Interbank Offered Rate (Sibor) could be paying much more this time next year.
OCBC is forecasting that the three-month Sibor - to which many mortgage rates are pegged - could double and hit more than 2 per cent by the end of next year.
Sibor is influenced by US Federal Reserve rates and the Singapore dollar strength, among other factors.
OCBC Bank's head of treasury research and strategy, Ms Selena Ling, told The Straits Times: "Persistent market speculation of further Monetary Authority of Singapore easing, given dovish growth and subdued inflation and a strong US dollar, will translate to greater pressure on Singapore-dollar short-term rates, especially the Swap Offer Rate. Sibor will also tend to follow with a lag."
Ms Ling said at an OCBC Bank 2016 Outlook Briefing yesterday the Fed is likely to raise rates by at least 1 to 1.25 percentage points by late next year. In its November meeting minutes released last week, the Fed hinted strongly it will next month make its first rate hike in about a decade. Ms Ling said the economy could see a "slow growth range" of between 2 and 3 per cent" for this year and next year.
Rate hikes and China's slowing growth would have already been taken into account in the growth numbers. Old growth engines, such as manufacturing, would remain in the doldrums, but new engines of growth, like financial services and information and communications technology, are coming on stream.
Although core inflation could be fairly subdued next year, do not expect persistent deflation, she said .
OCBC Bank head of research Carmen Lee said Singapore equities, which have not been performing very well this year, could get cheaper next year, with a price-to-earnings forecast of 12.1 times.
Since the financial crisis in 2008, the market has been trading at an average of 14 to 15 times earnings.
Expect to see high net worth investors looking into Singapore stocks too, Ms Lee added.
Volatility is still going to be very much in play and the whole region is still very much dependent on China.
Expect slower growth in the banking sector, and the property sector to remain challenging with the current cooling measures.
Healthcare could be one sector to look out for although valuations are expensive, Ms Lee said. She also noted Reits have been corrected since July and are yielding close to 7 per cent. She said: "December will taper off but it could also be a good time to accumulate some of the quality stocks."