SINGAPORE - The Singapore dollar firmed sharply against the US dollar on Wednesday (March 30), while local interest rates slid further after US Federal Reserve chair Janet Yellen reiterated the need for the central bank to adopt a more cautious pace raising interest rates.

As at 2 pm, the US dollar was trading at 1.3534 to the Singdollar - its lowest since its close on July 13, 2015 - after ending at 1.3677 on Tuesday. The Malaysian ringgit firmed to 3.9395 against the greenback from 3.9976 on Tuesday, and 4.0102 on Monday.

The three-month swap offer rate (SOR), which is used to price commercial loans, fell to 0.90 per cent on Tuesday, a level last seen in July. The plunge in the SOR has been spectacular given that the 52-week high was hit less than three months ago at 1.76 per cent on Jan 13.

The three-month Sibor or Singapore interbank offered rate, which is used to price home loans, fell to 1.16 per cent on Wednesday, down from the year-high of 1.25 per cent on Jan 19.

Local interest rate declines have followed the rallying Singapore dollar, along with other Asian currencies, as they react to central banks' stimulus largesse.

"USD/SGD collapsed overnight as the USD tumbled and stumbled across the board. As with the other local currencies, the bearish USD signal from the Fed is likely to see further USD capitulation this week," Mr Stephen Innes, senior trader at OANDA Asia Pacific, said.

Citi Research economists downgraded their forecast for Fed tightening this year to only one hike, either in September or December, following Dr Yellen's dovish remarks, which appeared to contradict hawkish signals from several other Fed speakers since the FOMC meeting two weeks ago.

"Yellen's reiteration of this dovish message will help reduce uncertainty about the Fed's reaction function, and should more strongly anchor expectations for a dovish Fed even in the face of robust data in the short-run," Citi said.