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Thread: China's inflation April 2011

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    Default China's inflation April 2011

    China and other developing countries inflation are worsening. They have started to affect US now. It's just a matter of months when inflation from China fully hits Singapore. Note the part on interest rate for house loans:


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    Quote Originally Posted by hyenergix
    China and other developing countries inflation are worsening. They have started to affect US now. It's just a matter of months when inflation from China fully hits Singapore. Note the part on interest rate for house loans:

    so SGD strengthen some more or SIBOR/SOR increase?

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    S'pore imports a lot of things. Strong S$ against all currencies such $US, etc should be good. Otherwise inflation will go higher.

    Recent article extracted from


    by: Property Buyer Singapore Mortgage Consultants
    SMS: 9782 8606
    We very frequently received questions such as, which is safer SIBOR rates or SOR rates from novice as well as experienced property buyers and investors. Some out there may feel shy to ask this question, but in fact, it is common not to know the answer, there is nothing to be ashamed about not knowing.

    When Does A Country Change Or Set Their Interest Rates?

    In the USA, the country is made up of many states coming together. There is a federal government and the state government. As the Federal government may not have the mandate and wide reaching powers and know-how to micro-manage the policies as every state’s economic condition is different. As a result, the USA mostly depends on a more granular mechanism such as using interest rates to control inflation and regulate growth.
    In Singapore, the country is rather small and therefore homogeneous. The Singapore government can manage the country to a very fine detail. When the economy heats up and inflation grows, instead of raising interest rates to control inflation, Singapore could raise it’s currency value against a trade weighted basket of currencies. This reduces the prices of imports as the Singapore dollar strengthens. This has the effect of lowering inflation for Singapore citizens. However this also impacts certain industries which relies on exports.


    Singapore’s interest rates are consistently set at a low level. Though we are not sure “SET” is the right word, because there are many factors including the liquidity of banks in Singapore which helps “SET” the interest rate environment. Banks that are flushed with cash from depositor’s funds who do not need all these funds will then release it into the Inter-bank market available to as funds to be borrowed by other financial institutions. The rate is called, the Singapore Inter-bank offered Rate (SIBOR). This is the rate at which the banks lend to each other and Sibor is traded and published in the Association of banks of Singapore (ABS).
    Singapore’s interest rates are consistently lower than that of the US and that of Australia. This ensures that Gross Fixed capital investment is maintained at a higher level of which a significant portion goes into investment of plant, machinery, software, etc. All of which could significantly enhance the long term productivity and efficiency of the Country.

    Why Does The Singapore Economy Not Over-Heat?

    Singapore’s Economy can over-heat just like any other. And Inflation can soar. However due to the various policies tools at the disposal of the Singapore government, it can selectively target industries that are over-heating by imposing levies, taxes or restrictions while leaving the other industries which are not over-heating to continue to grow.
    Thus Singapore’s finely tuned micro-managed economy can maintain higher growth rates due to long term lower interest rates and a longer term lower unemployment rate.

    When I Looked At US And Australia’s High Bank Interest Rates I Freaked Out

    Will Singapore’s interest rates reach the levels seen in Australia and US? It is hard to say whether Singapore will ever reach those rates seen in Australia or the USA, but on a comparative basis, Singapore’s interest rates tend to be lower than those in Australia and the USA.

    When Will Singapore’s Sibor Or SOR Rates Rise? And Why?

    In most modern economies, credit is well developed. What this means is, when there are investments or economic activities, funds are being used up. For example, a project that costs $600 million may need financing of at least 60% of that fund. That means the company who invests in that project only comes out with capital of $240 million while borrowing $360 million. Even the company’s investment of $240 million may also come from issuing shares or bonds of the company, leaving the actual capital of the investment lesser than $240 million.
    In other words, investments suck up excess capital and gradually deplete the funds of banks available for lending into the inter-bank market. This leads to an investment activity based and economic expansion based rise of rates.
    The other instance is when there are major economic shocks where we do not know how much are the banks exposed to these shocks. In such a scenario, each bank will view the other one with suspicion as they do not know whether they will get back their money if they leave lend it out. In such a scenario, the SIBOR or SOR rates move up very quickly. In such scenario, it is expected that the Singapore Government would intervene to provide the liquidity of the last resort, thereby stabilizing the market.
    So it is safe to say, when investment grows, funds are sucked up because most investments are still credit driven in a developed economy like Singapore.

    Quote Originally Posted by hopeful
    so SGD strengthen some more or SIBOR/SOR increase?

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