3-month SOR tumbles as USD takes a breather

A KEY interest rate, the three-month SOR or swap offer rate continues to fall steeply as the US dollar (USD) takes a breather.

The three-month SOR quoted at 1.25544 per cent on Feb 1, down 0.06670 from Jan 30, has plunged some 30 per cent from 1.76235 per cent on Jan 13. The other benchmark interest rate, the three-month Sibor or Singapore interbank offered rate has only eased slightly to 1.24270 per cent from the recent high of 1.2540 per cent on Jan 19. Commercial loans typically are pegged to SOR, while home loans use Sibor.

"SOR has fallen because of the decline in the USD/SGD since mid-Jan," said Saktiandi Supaat, head of FX research at Maybank Singapore.

The SGD (Singapore dollar) has recovered to S$1.4238 from $S1.4408 on Jan 15 as traders speculate that the US Federal Reserve might turn dovish in the light of wild swings in oil prices and stock markets in the past few weeks.

Fed chair Janet Yellen in a statement last week hinted that the Fed would not be as aggressive in hiking rates as originally planned. The Fed raised rates for the first time in nearly a decade on Dec 16, and subsequently the expectations was for four hikes this year. Since then some are betting that the Fed may raise interest rates only two times this year.

"The SOR tends to be volatile but, over the longer term, Sibors and SORs should trade fairly close together. We are finally seeing a convergence of the Sibor and the SOR as FX pressures on the SGD ease," said Eugene Leow, DBS Bank economist.

"With USD strength wavering of late as the market speculates on a Fed pause, Asian currencies including the SGD have benefited. This comes despite volatility in global equity markets," said Mr Leow.