Businesses and homeowners in Singapore should expect to pay higher interest rates in the coming year.
That is according to economists following the US Federal Reserve’s decision overnight (Dec 16) to raise its benchmark rate by one quarter of a percentage point to between 0.25 per cent and 0.50 per cent.
Economists said the Fed’s first interest rate hike in nearly a decade is a sign of confidence that the US economy is on the mend and that it was time to push rates up to more normal levels.
According to United Overseas Bank (UOB), the move will push Singapore’s interest rates higher. It expects the benchmark three-month Sibor to end 2016 at around 1.5 per cent, up from current levels of around 1.1 per cent. As for the Singapore dollar, UOB sees the US dollar peaking at around 1.46 in the middle of next year, giving a slight lift to exports.
The Sing dollar is currently trading around 1.41 to the greenback.
“For a start I will think that the Sing dollar will continue to weaken against the US dollar, at least for the first and second quarter of 2016,” said Mr Francis Tan, an economist at UOB. “What this means is that we’re expecting the US dollar and the Sing dollar to reach a high of around 1.46 by the middle of 2016. But going forward, because of economic recovery in the US, that will likely go to stronger exports from Asian countries, particularly from Singapore. ”
However experts said the Sing dollar is likely to strengthen against regional currencies like the ringgit and rupiah over the course of 2016, given the Singapore economy’s stronger economic fundamentals.
“It’s not a function of rate hike, it’s really their domestic factors,” said Mr Jack Wang, a partner at Raffles Investment. “For Indonesia, it’s pretty much the concerns about the inflation, which is pretty high – it can reach double digits. For Malaysia, it’s more of an impact of low oil prices, as well as the reputation – the credit rating of the country. So really, I think the domestic factors will play a role. The macro environment has not been very favourable to them.”
Source : Channel NewsAsia – 17 Dec 2015