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The 3-month swap offer rate (SOR) has jumped again, it was quoted at 1.40236 on Tuesday, a level last seen in January 2009.
Used typically to price commercial loans, the 3-month SOR has risen sharply since China stunned the market with its yuan devaluation on August 11. The 3-month SOR stood at 1.07461 on August 11.
"Most of the SOR moves are fx (foreign exchange) related," said Eugene Leow, DBS Bank economist.
"Increasingly, the market is coming to terms that the RMB will be on a weakening trajectory. As the RMB weakens, the market is speculating that there would be further Asia fx (including the Singapore dollar) declines versus the dollar," said Mr Leow.
"This development is putting upward pressure on Singapore dollar rates."
The Singapore dollar on Wednesday was quoted at S$1.4012 to the greenback. It was at S$1.3881 on August 10.
"SORs have been caught up in a negative feedback loop between emerging market weakness and fear of outflows," said Victor Yong, United Overseas Bank rates strategist.
In such an environment, sentiments on Singapore dollar invariably gets caught up with regional woes, said Mr Yong.
"Downgraded currency expectations have since resulted in higher SORs, with overshooting by forced US dollar hedging further exacerbating the moves," he said.
Another key local interest rate, the 3-month Sibor or Singapore interbank offer rate, typically used to price home loans was unchanged at 1.00208 per cent on Wednesday.