Business

Analysts revise forecasts upwards for Sibor, SOR

Analysts revise forecasts upwards for Sibor, SOR
The bulk of mortgages here are priced on the Singapore interbank offered rate (Sibor) and swap offer rate (SOR), which move in tandem with the United States Federal Reserve funds rate and the exchange rate between the US and Singapore currencies. TODAY File Photo
Published: 4:12 AM, January 29, 2015

SINGAPORE — The Monetary Authority of Singapore’s (MAS) move to ease monetary policy could cause domestic interest rates to rise faster, analysts said yesterday as they revised upwards their forecasts for the Singapore interbank offered rate (Sibor) and swap offer rate (SOR).

An MAS spokesperson, however, stressed that the adjustments in domestic interest rates, which will have widespread impact on homeowners and businesses here, will not be dependent on its latest policy stance.

“Domestic interest rates are expected to rise in tandem with US interest rates, regardless of the January policy announcement. The actual profile of the adjustment will be market-driven,” she said. “There could be some short-term volatility in the financial markets, reflecting uncertainties over the pace of interest rate normalisation and developments in the foreign exchange market.”

The bulk of mortgages here are priced on Sibor and SOR, which move in tandem with the United States Federal Reserve funds rate and the exchange rate between the US and Singapore currencies.

The three-month Sibor hit a high of 0.654 per cent this month, up from 0.457 per cent at the end of last year, while the six-month SOR climbed to 0.83 per cent, from about 0.45 per cent over the same period.

Following yesterday’s announcement, HSBC economist Joseph Incalcaterra expects the six-month SOR to rise to 1.1 per cent by the end of this year, higher than his earlier forecast of 0.8 per cent. “The MAS’ decision ... will intensify the upward pressure on SOR … For the rest of the year, the upward pressure on SOR is likely to persist particularly if the MAS adopts an even more dovish stance in April,” he said, referring to the MAS’ scheduled policy statement some two months later. “Even if that does not materialise, as we edge closer to the Federal Reserve’s first rate hike towards the end of the year, SOR is still likely to rise on higher US dollar Libor (London interbank offered rates),” he added.

Standard Chartered economist Jeff Ng said that the three-month Sibor will likely rise to 0.95 per cent by the end of this year, marginally higher than his previous forecast of 0.9 per cent. The US Federal Open Markets Committee is expected to shed more light on its plans to normalise interest rates after its meeting overnight Singapore time.

The MAS spokesperson added that the Government recognised that rising interest rates could affect some firms and households, and it has put in place measures to “help them adjust to this new reality”.

For firms, the Government will continue to monitor financing conditions, and ensure that viable businesses have continued access to affordable loan financing. For households, the MAS has implemented steps to encourage financial prudence, such as the Total Debt Servicing Ratio Framework.

“These measures have prevented borrowers from taking on excessive leverage for their property purchases, reducing the impact of eventual interest rate hikes,” the MAS spokesperson said. The authorities have also introduced regulations on credit card and unsecured credit to help individuals with credit problems avoid accumulating further debt. Lee Yen Nee