The Singapore Overnight Rate Average, the de facto standard for the city’s loan products, fell to 2.08% this week, the lowest since 2022. — Bloomberg
Singapore: Singapore’s money market rates have dropped as traders shrug off the central bank’s first monetary policy shift in five years.
The Singapore Overnight Rate Average, the de facto standard for the city’s loan products, fell to 2.08% this week, the lowest since 2022.
That’s because slower lending, foreign inflows into fixed deposits and a resilient currency helped keep cash conditions ample.
The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main policy tool, made a dovish pivot in January, in an operation that involved pushing down the value of the Singapore dollar.
That was expected to put upward pressure on interest rates, as traders demand higher returns for investing in a weaker currency.
Those bets haven’t materialised.
Moreover, the Singapore dollar’s outperformance versus most Asian currencies this year has also pushed down borrowing costs.
The city’s currency is anchored by the yuan, which has the support of the People’s Bank of China in the face of a trade war with the United States.
“Singapore dollar liquidity has been flush as investors could still be holding the view over the currency’s appreciation despite the earlier slope reduction from the MAS in January, while the loan-to-deposit ratio has stayed low,” said Frances Cheung.
Cheung is head of foreign exchange and rates strategy at Oversea-Chinese Banking Corp.
The drop in borrowing costs comes at a crucial time for Singapore’s economy, with the MAS signalling downside risks to growth at the January policy decision.
The city’s loan-to-deposit ratio has fallen from 70.5% at end 2023 to 68.2% as of January.
However, authorities would be reluctant to see a sharp drop in interest rates over the medium term as it may hinder their goal of cooling the property market, Audrey Ong, a strategist at Barclays Plc, wrote in a note yesterday.
Singapore private home sales climbed to a three-month high in February, spurred by locals seeking suburban residences and some trying to make a quick profit.
Developers sold 1,575 units last month, according to data released Monday by the Urban Redevelopment Authority.
The city-state is seeing a rebound in apartment sales as interest rates fall and some buyers try to make money from flipping condos.
That’s prompted analysts to forecast a growing chance of the government introducing more curbs to cool the market.
A record 603 new suburban homes were sold for at least S$2mil or about US$1.5mil last month, according to realtor OrangeTee Group.
“New home sales are projected to continue their strong momentum as more projects will launch for sale,” OrangeTee’s chief researcher Christine Sun wrote in a note.
Analysts from Barclays Plc, Morgan Stanley and Citigroup Inc. have warned of possible cooling measures if the buying frenzy continues.
For now better liquidity has translated into robust demand at bond auctions.
The sale of the 2035 sovereign bond on Feb 26 had a bid-to-cover ratio of 2.03 times, the highest for the 10-year tenor since July 2022. — Bloomberg
