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Thread: Short-term interest rate spikes

  1. #1
    mr funny is offline Any complaints please PM me
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    May 2006

    Default Short-term interest rate spikes

    Sep 30, 2008 Tuesday

    Short-term interest rate spikes

    Rise in Sibor leads to bigger loan repayments but higher interest for cash deposits for some

    By Gabriel Chen

    THE global credit crunch has started hitting home here with short-term interest spiking, spelling bad news for some home buyers but better news for those with cash in bank deposits.

    Local banks are said to have tightened their credit to each other and to corporate clients, which has had the effect of making money harder to borrow.

    The three-month Singapore Interbank Offered Rate (Sibor) has jumped in response, up by 100 basis points in just a month to 2 per cent.

    Sibor is the rate at which banks lend cash to each other and so directly influences what consumers pay on loans like mortgages as many home loans are pegged to it.

    Take a home buyer with a 20-year mortgage of $100,000 pegged to the three-month Sibor plus 1 per cent.

    Sibor's sharp rise could mean a monthly instalment of $506 surging to $555, according to United Overseas Bank's (UOB) head of loans, Mr Kevin Lam.

    The one-year Sibor rate has also been rising, though not as fast as its shorter variant. It moved from 1.75 per cent last month to about 1.875 per cent now.

    'The majority of our customers have chosen the 12-month Sibor, where the rates are fixed for 12 months. Their monthly instalments will not be affected since the rates will only be refreshed every 12 months,' said a DBS spokesman.

    Economists said short-term rates are elevated and rising, including those here, reflecting the 'dislocations' in global credit markets, as well as 'stresses amid the global shortage of US dollars'.

    'With everyone still wondering and suspecting who is next, credit and interbank markets are freezing up,' said OCBC Bank economist Selena Ling.

    While key central banks around the world have been injecting massive amounts of liquidity to break the impasse in the interbank markets, economists say this may not be enough.

    Ms Ling said: 'While these massive liquidity injections have ensured that funding for overnight to one week is still available, albeit at somewhat elevated rates, term funding exceeding one month is still hard to come by.'

    Higher interbank rates could also translate into higher lending rates for companies, and analysts say this could add to 'downside growth risks' for countries like Singapore already hurt by export slowdowns.

    Long-term Sibor rates have not risen as quickly as short-term ones, perhaps because funding pressures are more immediate in the short term, said Citigroup economist Kit Wei Zheng.

    On the flip side, the rising Sibor has meant higher deposit rates for some savers.

    HSBC's rates for its multi-currency account, which are pegged to one-month interbank rates, has moved from 0.17 per cent a year as at Aug 29, to 1.17 per cent as at Sept 29 for amounts less than $25,000.

    This gives a yield better than most saving deposit rates of 0.25 per cent, though HSBC's rates for its multi-currency account could head south if short-term interbank rates fall.

    Mr Dennis Khoo, general manager of lending at Standard Chartered Bank, said there will be 'upside pressure' on Singapore dollar Sibor in the immediate future.

    But Mr Khoo expects the three-month Sibor to decline early next year to just below 1 per cent and remain around that depressed level for most of next year.

    'We believe a US government-led rescue plan for the banking sector should be finalised and announced soon,' he said.

    Since short-term interbank rates are expected to fall, consumers could consider a mortgage pegged to the three-month Sibor rather than one linked to the one-year Sibor, suggested Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

    Mr Leong described the current situation - where short-term rates are higher than long-term rates - as an anomaly. It is the credit crunch, he said.

    As a result, he would pick a shorter-term Sibor-linked package despite the higher instalments over a longer-term one as the three-month Sibor would trend lower.

    The same reasoning applies to fixed deposits. 'If I'm putting money into a fixed deposit, I'll put it in a two-year fixed as I'm afraid short-term rates will go down,' he said.

    Banks say that although the three-month Sibor has moved up significantly in the past week, Sibor-pegged home loans remain popular.

    'They continue to be favoured over fixed rates and variable rates schemes as the applicable gross rate (Sibor plus a mark-up) is still relatively lower than the other two rate types,' said Mr Gregory Chan, OCBC's head of secured lending.

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    'With everyone still wondering and suspecting who is next, credit and interbank markets are freezing up.'
    OCBC Bank economist Selena Ling, on the 'dislocations' in global credit markets

  2. #2
    Reuters Guest

    Default China Cuts Rates, Fed And Others Set To Follow

    China cuts rates, Fed and others set to follow
    Burton Frierson and Elizabeth Piper
    New York, U.S. and London, U.K.
    Wednesday, 29 October 2008, 9:45 am U.S. ET

    China and Norway kicked off the latest round of global interest rate cuts, with the United States expected to follow later on Wednesday as policy-makers tried to soften the world's economic downturn.

    The Europe Central Bank and Britain are expected to add to the worldwide monetary easing next week as authorities remain fearful that the worst financial crisis in 80 years will cause a long global recession.

    China increasingly appears to be the world's last center of growth and has said it would not fall victim to the crisis. It cut its interest rate to 6.66% from 6.93.

    The Federal Reserve is widely expected to cut U.S. rates on Wednesday by at least half a point to 1%, the lowest level since June 2004.

    Norway's central bank cut rates by 50 basis points to 4.75%, ending more than three years of tightening.

    The rate cuts lifted stock markets for much of the day but analysts said any recovery would be short-lived given that a sharp economic downturn was already in progress.

    "Enjoy the party while you can," said David Buik, market commentator at Cantor Index in London.

    Japan's Nikkei index ended up 7.7% and European shares climbed 5%, with sentiment boosted by China's rate cut. U.S. shares opened lower, following the second-biggest ever rise a day earlier.

    The United States has entered a recession which will last longer and do more damage than any other since World War Two, the former head of the U.S. National Bureau of Economic Research, Martin Feldstein, was quoted as saying.

    Japan May Cut

    The Bank of Japan will consider cutting rates at a policy meeting on Friday but will watch market conditions before deciding, a source with knowledge of the matter told Reuters.

    A cut by the world's second-biggest economy would "send a message to the world that Japan is cooperating with other nations in tackling the financial crisis," said Koichi Haji, chief economist at NLI Research Institute in Tokyo.

    The European Central Bank and the Bank of England are expected to ease policy at their regular meetings next week.

    The ECB is expected to cut a half point off rates to 3.25%, their lowest in two years, according to a Reuters poll.

    An executive board member of the ECB said growth in the euro zone would be lower than expected.

    "Confidence will not return until we stop to think about the measures which have been taken and we can see financial institutions resuming their normal activity," Jose Manuel Gonzalez Paramo said in a newspaper interview.

    Bail Outs

    Governments have pledged about $4 trillion to support banks and restart money markets to try to stem the crisis set off by the bursting of a bubble in the U.S. housing market.

    As credit lines have dried up, a growing number of governments have had to look for help from global lenders.

    The IMF, European Union and World Bank agreed to a $25.1 billion economic rescue package for Hungary.

    Ukraine, which has been offered $16.5 billion by the IMF, was told to pass legislation through its fragmented parliament or risk no loan, higher inflation and a default on its debts.

    Central bank chairman Volodymyr Stelmakh said failure to secure the loan would lead to "double-digit inflation ... as well as moral discredit and declaring default.

    Ukraine's hryvnia currency sank to historic low of 7.05-7.20 to the dollar.

    In neighboring Belarus, run largely along command-economy lines, the deputy central bank head said the country was optimistic about agreeing a $2 billion IMF loan, and was ready to liberalize its economic policies.

    Pakistan's central bank governor said it was in no danger of defaulting on its debt but was considering whether to expand on technical help with the Fund.

    South Korea denied speculation it was seeking IMF support but said it would ease won liquidity requirements on banks to help bring down their funding costs.

    The Fund has agreed a $2.1 billion loan to Iceland, where the financial system has all but collapsed.

    IMF officials have said that the fund may need additional resources in a prolonged crisis and European Commission President Jose Manuel Barroso said on Wednesday China and the Gulf countries could do more to help the Fund support countries hit by the financial crisis.

    The European Union's executive also said the bloc's crisis funding facility of 12 billion euros ($15.3 billion) might not be enough and should be increased.

  3. #3
    Reuters Guest

    Default Singapore's Central Bank Announces Swap Facility With U.S. Federal Reserve

    Singapore's central bank announces swap facility with U.S. Fed
    Thursday, 30 October 2008

    Singapore's central bank announced on Thursday a swap facility with the U.S. Federal Reserve that will provide dollar liquidity of up to $30 billion to meet the needs of the banking system.

    "The Federal Reserve and the MAS are establishing a swap facility that will provide U.S. dollar liquidity of up to $30 billion," the Monetary Authority of Singapore (MAS) said in a statement.

    "Given the international character of financial markets in Singapore, MAS deems it prudent to join the group of central banks that have established swap facilities with the Federal Reserve," it said.

    The move is part of coordinated central bank actions, the MAS said.

  4. #4
    AFP and Reuters Guest

    Default Thanks, But Not Thanks

    Thanks, but not thanks
    Agence France-Presse and Reuters
    Friday, 31 October 2008

    The Monetary Authority of Singapore (MAS) said yesterday that it would not draw on a credit line offered by the United States Federal Reserve "at this time" because it has enough domestic liquidity.

    The Fed had announced temporary "swap" lines of credit of up to US$30 billion (S$44 billion) to central banks in four countries, including Singapore, to help them ease a credit squeeze.

    But MAS said the credit line was a "precautionary measure" to reassure financial institutions in Singapore that they would have ongoing access to US dollars.

    Most of these financial institutions have global operations and rely on Singapore as the largest US-dollar and foreign-exchange centre in Asia outside of Japan, the authority said in a statement.

    "MAS judges that it is not necessary to draw on the swap facility at this time, but will continually assess the need as global conditions develop," it said, adding that the swap facility will run until April 30, 2009.

    "There is sufficient liquidity in the Singapore-dollar market to meet the need of the banking system here."

    The authority said the facilities are designed to help improve liquidity conditions in global financial markets and "to mitigate the spread of difficulties in obtaining US-dollar funding in fundamentally sound and well-managed economies".

    Besides Singapore, other countries offered the temporary lines of credit are Brazil, Mexico and South Korea.

    The Fed said its actions were "in response to the heightened stress associated with the global financial turmoil, which has broadened to emerging-market economies".

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