Interest rates here will rise only at a moderate pace in the coming months, partly reflecting the dovish stance the United States Federal Reserve will take, Standard Chartered economists said.
Rates in the US will almost certainly rise this month, but probably by only 25 basis points, said chief economist of Asia David Mann, followed by another of the same size in March.
The rises will be limited due to what is expected to be fragile growth in the US, Mr Mann said at a StanChart outlook briefing yesterday.
"The US growth is coming from only three sources - labour, capital and productivity. The US population growth is now the slowest since the 1930s; labour participation has not stopped falling since the turn of the century, and labour productivity has been one of the weakest links for growth in the past three decades," he noted.
The American economy will grow 2.4 per cent this year, slowing to 1.6 per cent next year and 1.3 per cent in 2017, according to the bank's forecasts.
Against this backdrop, the increase in the Singapore Interbank Offered Rate (Sibor) will not be as dramatic as some market watchers fear.
"Based on the scenario that the US rates will stabilise after two hikes, Sibor will not rise too much next year. We think it could peak at 1.5 per cent before coming down towards the end of next year," Asia economist Jeff Ng said.
The Sibor is linked to the movements of US rates. The three-month Sibor, which is commonly used to guide bank mortgage rates, sits at around 1.077 per cent, having surged from 0.4 per cent between 2011 and last year.
Higher interest rates next year are a key concern to households and businesses in Singapore, as overleveraged borrowers may not be able to service their debt amid the choppy economic conditions.
But StanChart agrees with the Monetary Authority of Singapore's conclusion in its financial stability review that the credit quality will remain largely robust even under the stress-test scenario of a 3 percentage point increase in Sibor.
Still, Singapore's growth in the next two years will be "slow and volatile", Mr Ng warned.
"It's like running a marathon at noon. It's going to be hot and difficult to run very fast. This is because the external factors are not going to provide any strong boost.
"If our US forecast becomes reality and other economies remain weak, it could mean that Singapore will have growth of just around 2 per cent for the next two years."