SINGAPORE - The Federal funds rate lift-off has finally taken off after months of waiting and several false starts. The Federal Reserve's 25-basis-point increase was almost nine years in the making and one of the most telegraphed in history, and it comes at a time when profits are in decline, a combination that hasn't occurred in five decades.
Here's what four analysts have to say:
Rajeev De Mello, Schroders head of Asian fixed income: Relatively benign
We interpret the Fed hike and associated comments as relatively benign. The Fed was successful in implementing the first rate hike in 9 years during a period of lower liquidity without creating an increase in market volatility. Emphasis was on the gradual nature of future monetary policy tightening.
Nevertheless, the Fed has started increasing rates and has indicated that there will be many more rate hikes to come.
While the financial markets largely anticipated today's increase in policy rates, there remains a large gap between market pricing of future moves and the updated predictions of US FOMC members as reported this morning in the updated Summary of Economic Projections.
We expect that the US dollar can rally more after this meeting. However, we expect that in the order of performance, the dollar will perform best against the euro, the Japanese yen and Asian currencies. Corporate bonds should perform in this environment. Investors have significantly reduced risk positions and will feel comforted now that the uncertainty has passed.
Dr Henry Chin, head, CBRE Research, Asia Pacific: Widely anticipated
The 25-basis-point increase to the target federal funds rate was widely anticipated and therefore should not have a sudden or disruptive impact on interest rates or real estate markets in Asia Pacific.
The varied rate cycles in which markets in Asia Pacific currently find themselves should counterbalance the effect on property yields. However, this will work through as rates rise further in the future. Markets experiencing a softer outlook for rental growth or contracting rents may be more at risk of yields softening in response to higher rates. Yield expansion is more likely to occur in 2017 and beyond.
Desmond Sim, head, CBRE Research, Singapore & Southeast Asia: Minimal impact on SIBOR
The rate hike is expected to have a minimal impact on SIBOR rates as the increase is minimal and has already been priced in. However, it will put further pressure on capital values in light of the weakening occupier market. The yield spread is not expected to compress any further.
Ms Selena Ling, head of treasury research & strategy, OCBC Bank: Businesses and consumers will have time to adjust
Since the Fed chose to begin its policy normalisation in December as widely anticipated and chose not to rock the boat too much as far as expectations for 2016 rate hikes are concerned, by stressing data dependency and a slightly softer median dot graph profile for 2017, the likely trajectory is for a modest upward creep in the Sibor on the back of a generally strengthening USD against most Asian FX amid a still decelerating China and tepid Asian growth story.
Our baseline scenario for a 25 basis points rate hike per quarter in 2016 still stands and is vindicated by the Fed's median dots graph, so no change for now. As long as the Fed's future moves are well-telegraphed and gradual, businesses and consumers will have time to adjust.
What financial markets dislike are "surprises" and being caught unprepared. Companies may face higher refinancing costs, while the man on the street may also face rising mortgage rates, but on the flip side, rising deposit rates and yields will also benefit savers and investors.
SGD short-term interest rates may track USD rates, but are also influenced by MAS monetary policy expectations, especially given the two easing moves earlier this year on the back of softer-than-expected inflationary prints and sluggish domestic growth.