Homeowners hit as SIBOR rises to highest in seven years

Homeowners servicing mortgages will need to tighten their purse strings further: The three-month Singapore interbank offered rate (SIBOR) on Wednesday (Mar 11) charged past 0.9 per cent — a level not seen since 2008 — amid widespread expectations that the United States Federal Reserve will raise benchmark borrowing costs by mid-year.

The local interest rate, widely used to price home loans here, closed at 0.87943 per cent Wednesday, figures published on the Association of Banks in Singapore website showed. SIBOR continued to rise on Thursday to above 0.9 per cent, banking sources said, doubling the level seen at the beginning of this year.

Analysts whom TODAY spoke to said SIBOR’s climb followed the weakening of the Singapore dollar against the greenback in January, but took on added momentum after a very strong February job market in the US raised the likelihood that the Fed will normalise interest rates come June.

Following the US job report on Friday — showing the world’s biggest economy created 295,000 net new jobs last month to drive the unemployment rate to a seven-year low of 5.5 per cent — the US dollar rose to its highest versus the Singapore dollar since 2010.

“The rise in SIBOR has a lot to do with what we saw last Friday in the US, which caused the US dollar to move to a level we have not seen in a while. For a short time it touched S$1.39, which is very close to many people’s year-end forecast of S$1.40,” said UOB economist Francis Tan.

The other mortgage-pricing benchmark, the Singapore Swap Offer Rate (SOR), which is even more dependent on the US dollar-Singapore dollar exchange rate, soared above the 1 per cent level on Thursday, the highest since 2009.

The Monetary Authority of Singapore’s (MAS) surprise move in January to ease policy ahead of its scheduled April meeting had given rise to greater expectations of a weakening local currency, analysts said.

“I think there is rising expectations for the exchange rate to depreciate, not necessarily against the US dollar but also against the basket of currencies that the Singapore dollar is weighed against. That will put some upward pressure on interest rates,” said Credit Suisse economist Michael Wan.

“What this means is mortgage rates will rise, so households that have over-leveraged over the past years will be hit quite a bit and there may be some downward pressure on consumption spending. If domestic demand disappoints, it leaves more of the burden on external demand, or global growth, to drive the economy,” he added.

The recent rise in domestic interest rates have led to some economists re-looking their exchange rate projections for the year, but they said MAS’ policy decision come April will very much determine how things will pan out.

UOB’s Mr Tan said another easing by the central bank could push the US dollar to S$1.44, which will see the three-month SIBOR ending the year at around 1.3 per cent, up from his previous forecast of 1 per cent.

Source : Channel NewsAsia – 13 Mar 2015

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