The three-month Singapore Interbank Offered Rate (SIBOR) reached 0.63 per cent on Wednesday (Jan 7), compared to 0.45 per cent on Jan 2.
SIBOR is a key benchmark used to determine various lending rates. While the recent increase may signal the end of low interest rates, analysts said that for now, SIBOR remains well below historical levels.
At 0.63 per cent, the three-month SIBOR is now at its highest in recent years. Analysts said this is due to expectations of an increase in US interest rates later this year and also new regulations in Singapore requiring banks to set aside more liquidity.
However even at current levels, analysts pointed out that from a historical standpoint, interest rates are still some way off from “normal”.
Mr Alvin Liew, a senior economist at UOB, said: “If you bring yourself back to 2007, the rates were easily many times higher than where we are at 0.6 per cent. So I think largely in part due to the last six years, prolonged stability has inbuilt a lot of complacency in the market psyche, now with rates coming up.
“It is coming up from a very low base, so the increase looks magnified, but on a historical basis, we are still not anywhere near normal interest rates levels.”
Homeowners and buyers are likely to be among the first to feel the effects of a rising interest rate environment as many home loans are pegged to SIBOR. Business costs may also increase but according to analysts, firms may find that it is still manageable.
Mr Alfred Chia, CEO of SingCapital, said: “Corporate activity-wise, as far as SMEs (small and medium enterprises) are concerned, as long as their loan amount is not big, it is still something that is able to be digested.
“But of course, if you talk about a loan size of hundreds and millions of dollars, then even a 0.1 per cent increase would have significant changes. But once again, all these rate hikes are not unexpected. I think a lot of the businesses have already been geared up, it is just the way that it is coming.”
Looking ahead, expectations are that the three-month SIBOR will hover around 1 per cent at the end of this year. However, this may change depending on the pace of US interest rate hikes.
Source : Channel NewsAsia – 7 Jan 2015