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Sing dollar slides while interest rates remain weak on ample liquidity

Tuesday, October 4, 2016 - 18:40
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THE Singapore dollar (SGD) fell on Tuesday and is back to the early-June levels.

THE Singapore dollar (SGD) fell on Tuesday and is back to the early-June levels, but local interest rates remain weak on ample liquidity as inflows make their way to the resurgent region.

The SGD fell to S$1.3687 against the US dollar (USD) from S$1.3637 on Monday on broad-based USD strength and also was influenced by the battered sterling and lower euro as markets worry about a hard Brexit.

While the SGD is pegged to a basket of currencies, it tends to follow the majors such as USD, sterling, yen and euro, said Philip Wee, DBS Bank senior currency strategist.

Sterling fell to US$1.2764, its weakest since June 1985, following an announcement by British Prime Minister Theresa May that London will take steps to leave the European Union by March next year.

Local interest rates remain weak though, as there is ample liquidity in the system with capital inflows drawn to the region.

The key three-month Sibor (Singapore interbank offered rate) used to price mortgages was unchanged at 0.87 per cent.

The more volatile three-month SOR (swap offer rate), which is used to price corporate loans, on Monday fell to 0.62 per cent from 0.67 per cent last Friday.

"Ample domestic liquidity conditions and Asia foreign exchange strength are the main reasons driving the 3-month SOR lower" said Eugene Leow, DBS Bank economist.

The improving South-east Asian economies such as Indonesia, Philippines and Thailand continue to attract capital inflows, and "keep rates down", said Mr Wee.

Funds meant for the region benefit Singapore because "it is still the place to park and manage funds", he said.

The Thai and Indonesian stock markets are the best-performing markets in Asia; year to date, the Stock Exchange of Thailand rose 17 per cent while the Jakarta Composite Index is up 19 per cent.

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