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17-06-13, 15:25
http://www.straitstimes.com/archive/friday/premium/money/story/short-term-rates-set-stay-ultra-low-20130614
Short-term rates 'set to stay ultra-low'
Experts reckon three-month Sibor won't move till late next year at least
Published on Jun 14, 2013
By Fiona Chan Senior Economics Correspondent
SHORT-TERM interest rates in Singapore are expected to stay ultra-low for at least the next year, despite recent jitters over the United States scaling back its policies of easy money later this year.
Economists believe that the three-month Singapore interbank offered rate (Sibor) - a benchmark rate used to price many types of loans, including home loans - will not budge until the latter half of next year, or even 2015.
This is because short-term rates in the US, which Singapore's rates track, are forecast to remain near zero until then, they say.
"Singapore's domestic interest rates typically follow the US rates quite closely," said UOB senior economist Alvin Liew.
"For now, the three-month domestic interest rate looks likely to continue to hold steady at around the current rate, hovering at 0.4per cent until end-2014."
This means that borrowers and savers should not expect sudden large changes in the interest rates that they pay on their loans or earn on their deposits.
HSBC, for instance, said it has not raised its home loan interest rate spread for the last two or three months, and has no current plans to adjust it.
As for deposit rates, these will rise in tandem should the US pull back on its monetary easing policy, said Mr Paul Arrowsmith, the bank's head of retail banking and wealth management.
But he added that this is not expected to take place until the end of this year or next year.
The three-month Sibor plunged in 2009, after the global financial crisis, as the US Federal Reserve slashed its federal funds rate to near-zero to try to revive the economy. The Fed has said it will not raise this rate until the US unemployment rate drops to 6.5 per cent, which it estimates will not happen until 2015.
Unemployment last month was 7.6 per cent.
In line with this, the three-month Sibor has stayed at 0.38 per cent for the last 18 months. Economists polled by the Monetary Authority of Singapore last month said they expected the rate to stay unchanged to the end of this year at about 0.4 per cent.
UOB's Mr Liew tipped the first US federal funds rate hike to take place in the first quarter of 2015, although he said short-term market rates could start edging up at end-2014 in anticipation.
But long-term rates have already started to rise, as markets brace themselves for the Fed reducing the funds it is pumping into the system, said Mr Edward Lee, Standard Chartered regional head for South-east Asia research.
"While we expect the Fed to hike the federal funds rate only in the second half of 2015, it is quite clear that the market will adjust way before then," he said.
"Current talk of tapering has already driven quite an adjustment in longer-end rates. And this is only the start."
On May22, Fed chairman Ben Bernanke hinted that the central bank might soon begin to cut back its huge stimulus programme.
In a report last week, Citi said it expects 10-year Singapore Government bond yields to rise from 1.75 per cent to 2.4 per cent by the end of next year, even though the three-month Sibor is projected to stay at about 0.4 per cent.
Long-term rates have been kept low in recent years by the Fed's unprecedented quantitative easing policies of buying lots of long-term bonds from banks and flooding them with money.
But now that the US economy is slowly recovering, the Fed is expected to taper the volume of quantitative easing, starting in September or December this year.
Fearing that a rise in rates will follow, investors have been piling out of stocks and bonds, sending financial markets into a tailspin.
But economists say the expected tapering is not the same as a tightening in monetary policy.
The Fed will still inject money, but it will be a smaller monthly amount.
"A slowing shouldn't be seen as a tightening and would be followed by a period in which the Fed stance was neutral," said JPMorgan Chase's chief US economist, Mr Michael Feroli, in a recent report.
But he added that if the slowing happens earlier than the market expects, it could cause a "noticeable" rise in interest rates.
"For this reason, the Fed will approach this decision with caution," Mr Feroli said.
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Short-term rates 'set to stay ultra-low'
Experts reckon three-month Sibor won't move till late next year at least
Published on Jun 14, 2013
By Fiona Chan Senior Economics Correspondent
SHORT-TERM interest rates in Singapore are expected to stay ultra-low for at least the next year, despite recent jitters over the United States scaling back its policies of easy money later this year.
Economists believe that the three-month Singapore interbank offered rate (Sibor) - a benchmark rate used to price many types of loans, including home loans - will not budge until the latter half of next year, or even 2015.
This is because short-term rates in the US, which Singapore's rates track, are forecast to remain near zero until then, they say.
"Singapore's domestic interest rates typically follow the US rates quite closely," said UOB senior economist Alvin Liew.
"For now, the three-month domestic interest rate looks likely to continue to hold steady at around the current rate, hovering at 0.4per cent until end-2014."
This means that borrowers and savers should not expect sudden large changes in the interest rates that they pay on their loans or earn on their deposits.
HSBC, for instance, said it has not raised its home loan interest rate spread for the last two or three months, and has no current plans to adjust it.
As for deposit rates, these will rise in tandem should the US pull back on its monetary easing policy, said Mr Paul Arrowsmith, the bank's head of retail banking and wealth management.
But he added that this is not expected to take place until the end of this year or next year.
The three-month Sibor plunged in 2009, after the global financial crisis, as the US Federal Reserve slashed its federal funds rate to near-zero to try to revive the economy. The Fed has said it will not raise this rate until the US unemployment rate drops to 6.5 per cent, which it estimates will not happen until 2015.
Unemployment last month was 7.6 per cent.
In line with this, the three-month Sibor has stayed at 0.38 per cent for the last 18 months. Economists polled by the Monetary Authority of Singapore last month said they expected the rate to stay unchanged to the end of this year at about 0.4 per cent.
UOB's Mr Liew tipped the first US federal funds rate hike to take place in the first quarter of 2015, although he said short-term market rates could start edging up at end-2014 in anticipation.
But long-term rates have already started to rise, as markets brace themselves for the Fed reducing the funds it is pumping into the system, said Mr Edward Lee, Standard Chartered regional head for South-east Asia research.
"While we expect the Fed to hike the federal funds rate only in the second half of 2015, it is quite clear that the market will adjust way before then," he said.
"Current talk of tapering has already driven quite an adjustment in longer-end rates. And this is only the start."
On May22, Fed chairman Ben Bernanke hinted that the central bank might soon begin to cut back its huge stimulus programme.
In a report last week, Citi said it expects 10-year Singapore Government bond yields to rise from 1.75 per cent to 2.4 per cent by the end of next year, even though the three-month Sibor is projected to stay at about 0.4 per cent.
Long-term rates have been kept low in recent years by the Fed's unprecedented quantitative easing policies of buying lots of long-term bonds from banks and flooding them with money.
But now that the US economy is slowly recovering, the Fed is expected to taper the volume of quantitative easing, starting in September or December this year.
Fearing that a rise in rates will follow, investors have been piling out of stocks and bonds, sending financial markets into a tailspin.
But economists say the expected tapering is not the same as a tightening in monetary policy.
The Fed will still inject money, but it will be a smaller monthly amount.
"A slowing shouldn't be seen as a tightening and would be followed by a period in which the Fed stance was neutral," said JPMorgan Chase's chief US economist, Mr Michael Feroli, in a recent report.
But he added that if the slowing happens earlier than the market expects, it could cause a "noticeable" rise in interest rates.
"For this reason, the Fed will approach this decision with caution," Mr Feroli said.
[email protected]