mr funny
25-02-11, 20:53
http://www.businesstimes.com.sg/sub/news/story/0,4574,427763,00.html?
Published February 25, 2011
Singapore swap offer rate halves in just a week
By SIOW LI SEN
(SINGAPORE) The Singapore swap offer rate (SOR) plummeted to fresh lows yesterday on further inflationary worries stoked by the turmoil in Libya.
The three-month SOR which is charged on many home loans fell to 0.07988, halving from 0.14138 just last week.
On Wednesday, the government said that January inflation surged to 5.5 per cent, taking some economists by surprise at the accelerating pace of price increases.
More importantly, month-on-month (seasonally adjusted) inflation surged to a 30-year high of 1.3 per cent, noted Citi economist Kit Wei Zheng.
Coupled with developments in Libya, it is a one way street for the Singapore unit to go higher as the Monetary Authority of Singapore (MAS) uses a stronger currency to temper price hikes.
'Simply put, high inflation equals even greater chance of MAS tightening really, which is what the FX markets are pricing in, and that is therefore being transmitted to the SOR fixings,' said Mr Kit.
But still, the dramatic movements in the SOR which is affected by foreign exchange rates could be temporary, a liquidity surge caused by unwinding of positions, said Leong Wai Ho, a Barclays Capital economist. 'Oil is the catalyst, its positions being liquidated due to oil movements.'
Brent crude yesterday hit US$116 a barrel on fears that chaos in Libya could lead to an oil shortage. It was just under US$100 two weeks ago.
Adding to liquidity is the sale in the equity markets and it seems that all the money is being parked in the Singapore dollar.
'At the end of the day, people consider the Singdollar safe haven,' said Chia Woon Khien, Royal Bank of Scotland's head of local markets strategy.
Mr Kit said: 'Of course, one can argue that there is a risk premium being imputed on emerging markets, but given its AAA sovereign, Singapore is generally seen as a relative safe haven.'
Is the SOR headed for zero then?
'Well, the SOR is a derived rate, so it could theoretically go to zero or even beyond,' said Selena Ling, OCBC Bank economist. 'But I think this could create problems for the marketplace given that some loan packages use the SOR as the benchmark, and may also engender the wrong market behaviour (possibly in the property market). One key question is whether some intervention may be warranted?'
Published February 25, 2011
Singapore swap offer rate halves in just a week
By SIOW LI SEN
(SINGAPORE) The Singapore swap offer rate (SOR) plummeted to fresh lows yesterday on further inflationary worries stoked by the turmoil in Libya.
The three-month SOR which is charged on many home loans fell to 0.07988, halving from 0.14138 just last week.
On Wednesday, the government said that January inflation surged to 5.5 per cent, taking some economists by surprise at the accelerating pace of price increases.
More importantly, month-on-month (seasonally adjusted) inflation surged to a 30-year high of 1.3 per cent, noted Citi economist Kit Wei Zheng.
Coupled with developments in Libya, it is a one way street for the Singapore unit to go higher as the Monetary Authority of Singapore (MAS) uses a stronger currency to temper price hikes.
'Simply put, high inflation equals even greater chance of MAS tightening really, which is what the FX markets are pricing in, and that is therefore being transmitted to the SOR fixings,' said Mr Kit.
But still, the dramatic movements in the SOR which is affected by foreign exchange rates could be temporary, a liquidity surge caused by unwinding of positions, said Leong Wai Ho, a Barclays Capital economist. 'Oil is the catalyst, its positions being liquidated due to oil movements.'
Brent crude yesterday hit US$116 a barrel on fears that chaos in Libya could lead to an oil shortage. It was just under US$100 two weeks ago.
Adding to liquidity is the sale in the equity markets and it seems that all the money is being parked in the Singapore dollar.
'At the end of the day, people consider the Singdollar safe haven,' said Chia Woon Khien, Royal Bank of Scotland's head of local markets strategy.
Mr Kit said: 'Of course, one can argue that there is a risk premium being imputed on emerging markets, but given its AAA sovereign, Singapore is generally seen as a relative safe haven.'
Is the SOR headed for zero then?
'Well, the SOR is a derived rate, so it could theoretically go to zero or even beyond,' said Selena Ling, OCBC Bank economist. 'But I think this could create problems for the marketplace given that some loan packages use the SOR as the benchmark, and may also engender the wrong market behaviour (possibly in the property market). One key question is whether some intervention may be warranted?'