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18-10-10, 03:56
http://www.businesstimes.com.sg/sub/news/story/0,4574,408604-1287172740,00.html?
Published October 15, 2010
Interest rate plunge brings property cheer and fears
A key interbank rate hits record low in wake of MAS move
By SIOW LI SEN
(SINGAPORE) Local interest rates plunged to all-time lows yesterday following the steep appreciation of the Singapore dollar against the US unit. This gave home buyers reason to cheer.
The key three-month Sibor or interbank rate fell 0.7 per cent to a record low of 0.49667 per cent from Wednesday as more money flow is expected here in anticipation of currency gains after an unexpectedly hawkish monetary policy statement from the Monetary Authority of Singapore (MAS).
The three-month Sibor against which many home loans are pegged is now 10 per cent lower from 0.5500 per cent two months ago.
Analysts say that the slide in interest rates to new depths will renew risk of a property bubble and may prompt additional government measures.
The decision to let the Sing dollar appreciate more aggressively is a pre-emptive move to fight inflation. MAS expects inflation to touch 4 per cent by year-end and remain high in the first half of next year before moderating.
Domestic inflation rose significantly from 0.9 per cent in Q1 to 3.2 per cent in July-August, said MAS yesterday.
Chua Hak Bin, director, global research for Bank of America Merrill Lynch, said MAS' decision to steepen the appreciation path does not look timely.
Asian central banks are already grappling with surging capital inflows, with funds rushing to find attractive places to park their liquidity, he said.
Mr Chua estimates that the latest policy of 'offering a higher rate of appreciation is equivalent to offering a higher return (equivalent to 3 per cent versus previous 2 per cent), which will risk inviting even more capital inflows.'
Selena Ling, OCBC Bank economist, said her prior end-2010 forecast for three-month Sibor was 0.5 per cent, and 'today's move may potentially impart a 5-10 basis point downward bias'.
'Market sentiment is already fairly upbeat in terms of global risk appetite, and any emerging signs of further froth in the domestic property market would probably be quickly met with a policy response,' said Ms Ling.
A note from Morgan Stanley said it would be difficult for MAS to try to raise domestic interest rates.
'Depressed domestic interest rates may come with potential ramifications on asset markets like property. If prices continue to run up too quickly, we would not be surprised to see more sector-specific policy action,' it said.
Citi's economist Wei Zheng Kit too said with the Sing dollar likely to price in greater appreciation in response to the MAS policy, it may drag Sibor lower and fuel asset price inflation.
Amid a slide in the Straits Times Index yesterday, property stocks City Developments and Keppel Land gained, while CapitaLand lost ground.
CityDev rose 40 cents to $13.70 and is up 18.5 per cent for the year while KepLand was up two cents to $4.28 and has risen 22.3 per cent year-to-date. CapitaLand fell four cents to $4.16 and is 0.34 per cent up for the year.
http://www.businesstimes.com.sg/mnt/media/image/launched/2010-10-15/BT_IMAGES_LSRATE15A.jpg
Published October 15, 2010
Interest rate plunge brings property cheer and fears
A key interbank rate hits record low in wake of MAS move
By SIOW LI SEN
(SINGAPORE) Local interest rates plunged to all-time lows yesterday following the steep appreciation of the Singapore dollar against the US unit. This gave home buyers reason to cheer.
The key three-month Sibor or interbank rate fell 0.7 per cent to a record low of 0.49667 per cent from Wednesday as more money flow is expected here in anticipation of currency gains after an unexpectedly hawkish monetary policy statement from the Monetary Authority of Singapore (MAS).
The three-month Sibor against which many home loans are pegged is now 10 per cent lower from 0.5500 per cent two months ago.
Analysts say that the slide in interest rates to new depths will renew risk of a property bubble and may prompt additional government measures.
The decision to let the Sing dollar appreciate more aggressively is a pre-emptive move to fight inflation. MAS expects inflation to touch 4 per cent by year-end and remain high in the first half of next year before moderating.
Domestic inflation rose significantly from 0.9 per cent in Q1 to 3.2 per cent in July-August, said MAS yesterday.
Chua Hak Bin, director, global research for Bank of America Merrill Lynch, said MAS' decision to steepen the appreciation path does not look timely.
Asian central banks are already grappling with surging capital inflows, with funds rushing to find attractive places to park their liquidity, he said.
Mr Chua estimates that the latest policy of 'offering a higher rate of appreciation is equivalent to offering a higher return (equivalent to 3 per cent versus previous 2 per cent), which will risk inviting even more capital inflows.'
Selena Ling, OCBC Bank economist, said her prior end-2010 forecast for three-month Sibor was 0.5 per cent, and 'today's move may potentially impart a 5-10 basis point downward bias'.
'Market sentiment is already fairly upbeat in terms of global risk appetite, and any emerging signs of further froth in the domestic property market would probably be quickly met with a policy response,' said Ms Ling.
A note from Morgan Stanley said it would be difficult for MAS to try to raise domestic interest rates.
'Depressed domestic interest rates may come with potential ramifications on asset markets like property. If prices continue to run up too quickly, we would not be surprised to see more sector-specific policy action,' it said.
Citi's economist Wei Zheng Kit too said with the Sing dollar likely to price in greater appreciation in response to the MAS policy, it may drag Sibor lower and fuel asset price inflation.
Amid a slide in the Straits Times Index yesterday, property stocks City Developments and Keppel Land gained, while CapitaLand lost ground.
CityDev rose 40 cents to $13.70 and is up 18.5 per cent for the year while KepLand was up two cents to $4.28 and has risen 22.3 per cent year-to-date. CapitaLand fell four cents to $4.16 and is 0.34 per cent up for the year.
http://www.businesstimes.com.sg/mnt/media/image/launched/2010-10-15/BT_IMAGES_LSRATE15A.jpg