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Mortgage interest rates in Singapore for 2016 and beyond
By Paul Ho / iCompareLoan, The Edge Property | January 11, 2016 10:00 AM MYT
Tags: mortgageinterest rateSIBOR
We have established that the Singapore interbank offered rate (Sibor) seems to be highly correlated to the US Federal Reserve funds rate target. Hence, we tend to watch the Fed to find clues to where the mortgage interest rates in Singapore are moving towards.
In August 2015, we forecast that “at a rate of 0.1% drop in unemployment a month, by November, it should fall below 5% at current trajectory and the Fed may be tempted to raise the funds rate target by 0.25% to 0.5% as a precautionary measure”.
In December, US unemployment rate dropped to 5% and the Fed raised the overnight funds rate from 0.25% to 0.5%.
The unemployment rate looks to be on a downward trend, while disposable incomes are rising. Economic and political pressures are building up for wage growth in 2016. Thirteen US states are raising minimum wages.
The Fed would watch keenly whether the economy is overheating and causing inflation and raise interest rate to cool it down.
Labour tightness contributes to inflation, while import price drops are disinflationary. However, personal consumption was at 68.83% of GDP as at November. Hence, rising disposable incomes would likely lead to inflation. Oil price may recover in 2016, raising the inflation figure.
The rest of the world was largely in a deflationary environment. This caused the US import prices to dip, further aided by the strengthening US dollar. The drop in oil import price played a large part in the drop in US import prices, leading to low inflation in the US in 2015.
Chart 1
Source: Tradingeconomics, US Bureau of Labor Statistics, iCompareLoan.com
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