Key local benchmark rate surging.
Sibor rising on stronger greenback, expectations of US Fed rate hike.
A KEY benchmark local interest rate has surged to a level not seen since early 2009.
The three-month Singapore interbank offered rate, or Sibor, which is the rate that banks lend at to one another and is used in mortgages, rose to 0.9131 per cent last Friday.
That marked a rise of 12.3 per cent since March 6, when the United States announced that it had created 295,000 jobs last month, above consensus expectations for a rise of 240,000.
Growing strength in the US economy gives the Federal Reserve leeway to normalise interest rates, which have been stuck at ultra-low levels in a bid to spur growth.
Sibor in turn, is closely correlated to the US Fed funds rate, so any expectations of a hike there would move interest rates here higher.
A weaker Singdollar against the greenback would also lift Sibor, as a higher interest rate is needed to compensate investors for the capital depreciation.
Historically, this has been the case for much of Sibor's movements.
The rise (2004 - 2006)
SIBOR started moving up in 2004, rising to above 1 per cent, a leap from the trough of around 0.54 per cent in 2003. It hit 3.5625 per cent in the middle of 2006.
Rates in the US began rising in June 2004 as growth there picked up after the onset of the recession in 2001 brought about by the dot.com bust and the Sept 11 attacks.
Singapore's economy was also healing from the severe acute respiratory syndrome (Sars) crisis in 2003.
A stronger economy boosts confidence among consumers and businesses, who are more willing to spend and borrow more, driving up interest rates as demand increases.
Central banks such as the Fed also hiked interest rates to prevent inflation from soaring.
There were 17 Fed hike increases from June 2004 to June 2006, with interest rates hitting 5.25 per cent in June 2006.
The fall (2007 - 2014)
THIS was the start of the dramatic eight-year decline to near-zero interest rates.
Sibor fell from a high of 3.5 per cent in 2007 to below 2.75 per cent in the same year as a purring economy saw huge amounts of cash sloshing about the financial system. The higher supply drove interest rates lower.
Elsewhere, worries that toxic subprime housing loans in the US could take a toll on banks weighed on markets and the economy.
The Fed reversed course and started decreasing its interest rate from August 2007, leaving it at 4.25 per cent by the end of the year.
It lowered rates a further seven times in 2008 to between zero and 0.25 per cent by December after the global financial crisis took hold with the collapse of investment bank Lehman Brothers in September.
Sibor fell below 1 per cent in 2008, though it shot up to 2.23 per cent in September that year as credit markets around the world froze, with lenders unwilling to issue loans and demanding higher interest rates for the risk.
The Fed then injected capital markets with unprecedented liquidity through its quantitative easing programme to make loans cheaper and revive the moribund economy.
It also pledged to keep interest rates at record lows until the economy recovers.
This drove effective interest rates in the US close to zero, while Sibor fell to a low of 0.3442 per cent in September 2011.
The swap offer rate, or SOR, which is commonly used in commercial loans, even dropped into negative territory for the first time in history to a low of -0.6987 in August 2011.
A negative rate implies savers pay the bank to keep their money while borrowers are paid to take out loans as investors flush with cash look for safe havens like Singapore to park their money.
The rise again (2015)
SIBOR started creeping up towards the end of last year, staying near 0.4 per cent. It made a sudden upturn in January this year, breaking past 0.5 per cent and gaining strength steadily since to cross the 0.9 per cent mark.
Speculation that the first US rate hike in almost a decade could take place sooner - perhaps as early as June instead of nearer the end of the year - and a stronger greenback drove up interest rates here.
The US dollar traded at 1.3889 against the Singdollar late last Friday, a lofty level not seen since July 2010.
Economists here have previously forecast that Sibor could hit 1 per cent by the end of the year, though their numbers are being revised due to the interest rate's rapid rise.
The Straits Times / Money Published on Tuesday, 17 March 2015
By Mok Fei Fei feimok@sph.com.sg
A KEY benchmark local interest rate has surged to a level not seen since early 2009.
The three-month Singapore interbank offered rate, or Sibor, which is the rate that banks lend at to one another and is used in mortgages, rose to 0.9131 per cent last Friday.
That marked a rise of 12.3 per cent since March 6, when the United States announced that it had created 295,000 jobs last month, above consensus expectations for a rise of 240,000.
Growing strength in the US economy gives the Federal Reserve leeway to normalise interest rates, which have been stuck at ultra-low levels in a bid to spur growth.
Sibor in turn, is closely correlated to the US Fed funds rate, so any expectations of a hike there would move interest rates here higher.
A weaker Singdollar against the greenback would also lift Sibor, as a higher interest rate is needed to compensate investors for the capital depreciation.
Historically, this has been the case for much of Sibor's movements.
The rise (2004 - 2006)
SIBOR started moving up in 2004, rising to above 1 per cent, a leap from the trough of around 0.54 per cent in 2003. It hit 3.5625 per cent in the middle of 2006.
Rates in the US began rising in June 2004 as growth there picked up after the onset of the recession in 2001 brought about by the dot.com bust and the Sept 11 attacks.
Singapore's economy was also healing from the severe acute respiratory syndrome (Sars) crisis in 2003.
A stronger economy boosts confidence among consumers and businesses, who are more willing to spend and borrow more, driving up interest rates as demand increases.
Central banks such as the Fed also hiked interest rates to prevent inflation from soaring.
There were 17 Fed hike increases from June 2004 to June 2006, with interest rates hitting 5.25 per cent in June 2006.
The fall (2007 - 2014)
THIS was the start of the dramatic eight-year decline to near-zero interest rates.
Sibor fell from a high of 3.5 per cent in 2007 to below 2.75 per cent in the same year as a purring economy saw huge amounts of cash sloshing about the financial system. The higher supply drove interest rates lower.
Elsewhere, worries that toxic subprime housing loans in the US could take a toll on banks weighed on markets and the economy.
The Fed reversed course and started decreasing its interest rate from August 2007, leaving it at 4.25 per cent by the end of the year.
It lowered rates a further seven times in 2008 to between zero and 0.25 per cent by December after the global financial crisis took hold with the collapse of investment bank Lehman Brothers in September.
Sibor fell below 1 per cent in 2008, though it shot up to 2.23 per cent in September that year as credit markets around the world froze, with lenders unwilling to issue loans and demanding higher interest rates for the risk.
The Fed then injected capital markets with unprecedented liquidity through its quantitative easing programme to make loans cheaper and revive the moribund economy.
It also pledged to keep interest rates at record lows until the economy recovers.
This drove effective interest rates in the US close to zero, while Sibor fell to a low of 0.3442 per cent in September 2011.
The swap offer rate, or SOR, which is commonly used in commercial loans, even dropped into negative territory for the first time in history to a low of -0.6987 in August 2011.
A negative rate implies savers pay the bank to keep their money while borrowers are paid to take out loans as investors flush with cash look for safe havens like Singapore to park their money.
The rise again (2015)
SIBOR started creeping up towards the end of last year, staying near 0.4 per cent. It made a sudden upturn in January this year, breaking past 0.5 per cent and gaining strength steadily since to cross the 0.9 per cent mark.
Speculation that the first US rate hike in almost a decade could take place sooner - perhaps as early as June instead of nearer the end of the year - and a stronger greenback drove up interest rates here.
The US dollar traded at 1.3889 against the Singdollar late last Friday, a lofty level not seen since July 2010.
Economists here have previously forecast that Sibor could hit 1 per cent by the end of the year, though their numbers are being revised due to the interest rate's rapid rise.
The Straits Times / Money Published on Tuesday, 17 March 2015
By Mok Fei Fei feimok@sph.com.sg
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