Interest rate trajectory: different endings

Singapore

There is no doubt to pundits about the direction of interest rates, but each has a different view on where the trajectory would end.

The US Federal Reserve raised interest rates by a quarter of a percentage point on Sept 26 to a range of 2 per cent to 2.25 per cent - its third time this year and the eighth since it started raising rates in 2015. It is forecast to raise rates again in December, followed by three more hikes in 2019.

Minutes from the latest Federal Open Market Committee meeting leaned towards a more hawkish tone, with the Fed showing a commitment to tighten monetary policy in a bid to keep the economy steady.

DBS Bank's rates strategist, Eugene Leow, said that the uptrend in SGD rates is clear. He expects SOR and Sibor, which is usually used to price home loans, to continue trending upwards to reach 2.85 per cent by Q419. "DBS anticipates another five hikes by the end of 2019. "

UOB head of markets strategy Heng Koon How forecast that the three-month benchmarks for borrowing costs will climb to just under 2 per cent by year end and further to about 2.5 per cent by end-2019.

He opined that Monetary Authority of Singapore's recent tightening would imply that local rates while expected to climb, will continue to maintain their relative discounts to the US rates.

Head of treasury research and strategy at OCBC Bank Selena Ling sees a more modest hike. "From current levels around 1.64-1.67 per cent region, our end-2018 forecasts for the pair are 1.7 per cent and 1.75 per cent respectively, and rise to 2.3-2.4 per cent region by end-2019. "

Her views are predicated on the Fed's intention to hike again in December and persist with three hikes in 2019, coupled with the withdrawal of global liquidity by other major central banks like the European Central Bank, which will halt asset purchases from the end of this year and contemplating rate hikes in 2019.

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