Sibor down but not expected to stay low as Fed hike looms

Three-month rate dips to new low this year, though it's not likely to spark change in borrowings

A woman holds a stack of $50 Singapore dollars.
A woman holds a stack of $50 Singapore dollars.PHOTO: ST FILE

The key benchmark that sets mortgage rates has hit a new low this year. The three-month Singapore interbank offered rate (Sibor) dipped to 0.87067 per cent yesterday - well below its high of about 1.25 per cent in the first quarter.

The Sibor tends to stay low when banks are awash with cash and the United States Federal Reserve keeps interest rates low. This allows banks to offer their loans more cheaply.

But the latest drop would not be significant enough for borrowers to rethink their approach to loans, said MoneySmart's head of mortgage David Baey.

He said: "Three-month Sibor was 0.87317 per cent at the start of September, and 0.87588 per cent in early August. It is more true to say that Sibor has stabilised as it has held steady within a 1 per cent difference in the past three months.

"As Sibor is highly correlated to US interest rates, and talk of the Fed rate increasing has stagnated since Brexit, we should be seeing the Sibor maintaining the current level at least until December."

But with the US Fed still expected to announce a rate hike by the end of the year, Mr Baey said it would be "somewhat short-sighted" to pile in on mortgages fixed to Sibor.

He added that if the Fed raises rates before the end of the year, he would not be surprised "to see three-month Sibor going back to February's high".

The case, which is strengthening, for the Fed to raise rates has kept the US dollar rising, lifting it to above 1.3730 against the Singdollar yesterday, the highest since early June.

Market watchers here are divided in their views on whether the Monetary Authority of Singapore will ease its exchange rate policy this month. ABN Amro senior foreign currency strategist Roy Teo believes it will shift the band lower by 0.5 per cent to 1 per cent.

"This is to signal that further strength in the Singdollar is unwelcomed… We expect a combination of slower economic growth in the coming months, a weaker Chinese yuan and firmer US dollar to weigh on the Singdollar. Our 2016 year-end forecast is 1.40," he said in a note last week.

Meanwhile, the British pound dropped to less than 1.74 against the Singdollar yesterday to test the 30-year low of 1.73 hit in August.

The fall came after British Prime Minister Theresa May set March next year as the deadline to trigger the mechanism for Britain to exit the European Union.

A version of this article appeared in the print edition of The Straits Times on October 07, 2016, with the headline 'Sibor down but not expected to stay low as Fed hike looms'. Print Edition | Subscribe