S’pore interest rates could bottom out in second quarter of 2026: UOB
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UOB is expecting US interest rates to bottom out in the third quarter of 2026 and Singapore interest rates to bottom out in the second quarter.
PHOTO: ST FILE
Follow topic:
- Singapore's interest rates, using Sora, may bottom out by Q2 2026 due to expected US Federal Reserve rate cuts.
- UOB forecasts Sora to stabilise around 1% before rising to 1.39% by end-2026, ahead of US rates.
- Singapore's GDP is expected to grow by 2.6% in 2026, moderating from 2025's 4.8% but still "decent".
AI generated
SINGAPORE - Interest rates in Singapore could bottom out in the second quarter of 2026 as the US Federal Reserve cuts rates, shortening the wait for hedging opportunities.
The Singapore Overnight Rate Average, or Sora, is the Republic’s key interest rate benchmark and reflects the average rate of unsecured overnight interbank Singdollar borrowing. For consumers, it influences how much interest they pay on home loans and other bank borrowings.
“If you are looking to hedge interest rates, the timeframe to be looking at it is the first and second quarter of 2026. We are not so far away from the low,” said UOB senior foreign exchange strategist Peter Chia.
Speaking at UOB’s 2026 market outlook webinar on Jan 7, Mr Chia noted that Sora could bottom around 1 per cent before heading towards 1.39 per cent by the end of 2026.
He added that Singapore interest rates were already showing signs of stabilising in late 2025 after the Fed cut rates in the US in September, October and December
This is “consistent with our view that a lot of the transmission of Fed rate cuts to Singapore happened before the rate cuts, not after”, he said.
“As Singapore rates have moved lower ahead of the Fed’s rate cuts, we expect the former to bottom ahead of the latter.”
UOB is expecting US interest rates to bottom out in the third quarter of 2026 and Singapore interest rates to bottom out in the second quarter.
Sora is expected to stabilise at a time when growth in the Singapore economy is also forecast to moderate after a strong year in 2025.
The local economy expanded 4.8 per cent in 2025
In 2026, gross domestic product (GDP) is expected to grow by 2.6 per cent, according to UOB’s latest forecasts. This is up from 2.1 per cent previously.
UOB head of research Suan Teck Kin said: “We had a very strong year in 2025. I doubt we are going to be able to replicate the same momentum that we had last year.”
He noted that 2025 was an unusually strong year, lifted by factors including booming demand for AI chips and companies shipping goods earlier than usual, especially pharmaceuticals.
Mr Suan added that a 2.6 per cent growth rate is still a “decent number” and “quite close to a potential growth rate of about 3 per cent”.
The Government forecasts GDP growth for 2026 to be in the range of 1 per cent to 3 per cent
UOB is projecting two Fed rate cuts of 25 basis points each in 2026, particularly in the second and third quarter, but cautioned that there is a lot of uncertainty, depending on what the new US Fed chairman decides to do.
Mr Jerome Powell’s term as Fed chairman is set to end in May.
The Fed cut rates three times in 2025 to a range of 3.5 per cent to 3.75 per cent while projecting one more cut for 2026 because of labour market concerns and ongoing inflation.
