Business

Expert: Fall in interest rates here 'within expectations'

Interest rates here have fallen sharply in the second week of this year on seasonal factors and a relatively weak US dollar.

The more volatile three-month SOR or swap offer rate fell to 0.868 per cent on Tuesday, from 0.902 per cent on Monday. It lost 17 points from the one-month high of 1.04 per cent on Dec 29.

The SOR, which is used to price commercial loans, is updated late at night.

The key three-month Sibor, or Singapore interbank offer rate - a benchmark for home loans - stood at 0.967 per cent yesterday, down for a third day.

The one-month high was 0.973 per cent on Jan 5.

The increase in SOR and Sibor rates towards the end of last year reflected seasonal factors when liquidity tightens as traders close their books and go on holiday, said Mr Victor Yong, United Overseas Bank interest rate strategist.

The three-month SOR rose by 35 basis points over the past quarter, outpacing the three-month Sibor (up by 10 basis points).

"It then reverses course a couple of weeks into the New Year; movements are within expectations," said Mr Yong.

He also noted that the consensus expectations for the US Federal Reserve to make the first 2017 interest rate hike has shifted to June, though some are still rooting for a move earlier.

WEAKER US DOLLAR

The greenback has also weakened after hitting a 14-year high last week.

The US dollar index was last up 0.08 per cent at 102.010.

The index hit a 14-year high on Jan 3 of 103.820, said a Reuters report yesterday.

The more muted US dollar movements and softer SOR and Sibor interest rates are "more of a noise, rather than a repudiation of the consensus", said Mr Yong.

"It is important not to over extrapolate the movements."

Singapore dollar forward points have been heading lower as USD strength wavers, said DBS Bank interest rate strategist Eugene Leow.

He said: "This has pushed down the three-month SOR.

"Looks like some volatility is being induced from the forex side again."

Mr Yong said that UOB's projection for now is that the three-month SOR and Sibor could end this year at 1.35 per cent.

He said: "The risk is towards the upside especially if regional currencies' volatility pick up." - THE BUSINESS TIMES

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