SINGAPORE - Local interest rates are inching up and investors are on edge as the countdown to Thursday's decision by the United States Federal Reserve begins in earnest.
It is widely expected that the Fed will raise interest rates from near-zero levels - the first such rise in nine years - and the effects are already rippling through Singapore's financial and currency markets.
The greenback has strengthened against the Singdollar. More importantly, for mortgage holders and business owners, the cost of lending is going up.
The three-month swap offer rate (SOR), a benchmark for commercial loans and some home loans, spiked to a new three-month high of 1.59168 per cent yesterday from 1.50597 per cent last Friday and 1.39520 per cent on Thursday. The previous high was at 1.56409 per cent on Sept 8.
It is now almost four times higher than at this time last year.
It is a similar story with the three-month Singapore interbank offered rate (Sibor). The Sibor, which is used extensively to price home loans, hit a two-month high of 1.12865 per cent yesterday and is now almost three times higher than its level 12 months ago.
This means the monthly repayments on a $500,000 loan with a 25-year period pegged to Sibor will be $168 more than a year ago, while one pegged to the three-month SOR will be $262 more.
The US rate hike has been flagged for several months, during which a rising number of home owners have switched to fixed-rate mortgages, and a new product pegged to fixed deposit rates was launched.
SOR loans became popular around 2010-2011, when SOR started to dip below Sibor.
Most home loans extended by DBS Bank, Singapore's largest provider of mortgages, are pegged to Sibor, with fewer than 500 based on SOR, said Mr Tok Geok Peng, its executive director of secured lending.
Personal finance portal MoneySmart.sg estimates that 45 per cent of mortgages are pegged to fixed deposit rates, 50 per cent to Sibor and the remainder to SOR, based on loan take-ups in the past two months.
ABN Amro chief economist Han de Jong noted that this will "undoubtedly be one of the best flagged rate increases ever, so it is hard to see how people can be caught off guard, but you never know".
DBS Bank economist Eugene Leow said: "We expect a 25-basis point hike but much of this has already been priced into the market.
"We suspect that Sibor and SOR rates will likely rise by a smaller magnitude than US rates."
DBS sees Sibor at 1.4 per cent by the first quarter next year.
The rate talk has also hit stocks and currencies as investors wait on the sidelines for a decision. The US dollar rose from 1.4095 to the Singdollar last Friday to 1.4129 yesterday while local share investors, who seem determined to keep their powder dry until later in the week, left the benchmark Straits Times Index down 0.69 per cent yesterday.