Key rates for mortgages, business lending fall

http://www.straitstimes.com/archive/...-fall-20150609

Key rates for mortgages, business lending fall

But drop likely temporary as US rates expected to rise, say analysts

Published on Jun 9, 2015 2:22 AM

By Grace Leong


TWO key interest rates affecting business loans and mortgages have fallen from their 2015 peaks.

But experts say this is likely temporary relief as positive United States jobs data on Friday and a stronger greenback have reinforced expectations of an interest rate hike this year.

The three-month swap offer rate (SOR), commonly used to price commercial loans, fell 25 per cent to 0.84886 per cent on Friday from a year-high of 1.13207 per cent on March 24, while the six-month SOR fell nearly 22 per cent to 1.01130 per cent from a year-high of 1.29498 per cent on March 23.

The three-month Sibor (Singapore interbank offered rate), which is used to price home loans, stood at 0.83080 per cent, down 19 per cent from a year-high of 1.02705 per cent on April 9.

The six-month Sibor was at 0.89009 per cent, down nearly 18 per cent from the year-high 1.08360 per cent on April 9.

The Singdollar has responded as well. It traded at 1.3623 against the greenback yesterday, down 2.2 per cent from a year-high of 1.39 on March 18.

The US dollar rose against most of its major peers after 280,000 non-farm jobs were created in May, a number that exceeded forecasts.

The two rates have been climbing since the start of the year in tandem with a rising US dollar. After the Monetary Authority of Singapore left monetary policy unchanged in its April review, the Singdollar recovered to around 1.32 at end-April. Some economists say the recent pullback in the two rates is due to a "normalisation from overly high levels".

Home owners and businesses will enjoy temporary relief from the rate falls as loan repayments drop in tandem, but both benchmarks are set to rise, depending on when US rates lift.

Mr Jeff Ng, Asia economist at Standard Chartered Bank, said yesterday: "It is likely that upside pressures may return again for Singapore rates, given recent trends.

"The positive news on US data and Fed commitment to hike rates point to higher US interest rates this year and next year. At the same time, a stronger US dollar compared to the Singapore dollar increases the spread between domestic and US interest rates.

"We see the benchmark three-month Sibor moving above the 1 per cent mark, and six-month SOR at 1.3 per cent by the end of this year."

Mr Victor Yong, United Overseas Bank rates strategist, said: "Domestic funding demand and the expectation that the US Federal Reserve will start its rate normalisation this year will keep SORs supported into the end of the year."

UOB predicts the three-month SOR will be at 1.40 per cent by the end of the year, while the Sibor will be at 1.30 per cent.

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