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Singapore interest rates continue heading south, fall to lowest this year

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THE three-month swap offer rate (SOR) has fallen to the lowest point this year, dragged down by the weakening US dollar.

THE three-month swap offer rate (SOR) has fallen to the lowest point this year, dragged down by the weakening US dollar.

On Monday, the three-month SOR, which is used to price commercial loans, fell to 0.737 per cent, down 0.072 points from Friday's 0.809 per cent. The more volatile SOR, which is updated late at night, has now tumbled 30 points from the one-month high of 1.04 per cent on Dec 29, 2016.

The three-month Sibor (Singapore interbank offered rate), which is used to price home loans, was only slightly lower to 0.961 per cent, from 0.962 per cent.

The higher SOR rate previously was due to seasonal factors but it is now sliding along with a weaker US dollar, said Victor Yong, United Overseas Bank (UOB) interest rate strategist.

The Singapore dollar has continued to rally. It rose to S$1.418 against the US dollar on Tuesday, up from from S$1.42 on Monday. The one-month low was S$1.452 on Dec 28.

Mr Yong said the US dollar is at a critical level, "important line in the sand level".

The US dollar index is now at around 100, and whether it holds above 100 will determine if Singapore interest rates fall further, he said.

The US dollar fell to a 11/2-month low against an index of the world's other top currencies on Monday, after US President Donald Trump struck a protectionist tone in his inauguration speech, said Reuters.

The US dollar index, which measures the greenback against six major rivals, fell half a per cent to 100.28 on Monday, said Reuters.

The index rose around 4.2 per cent between Mr Trump's election in November and the end of last year, but it has given back over 2.5 per cent of that gain since then, having fallen for nine of the 16 trading sessions this year.

For the time being, the three-month SOR is likely to range from 0.7 per cent to 0.9 per cent in Q1, said Mr Yong.

"It's as good as it gets, don't see it going much lower," he said.

UOB's view is that the strong US dollar trend remains intact.

"If it takes another hit, it shouldn't be sustainable," he said.

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