3-month Sibor jumps ahead of Fed meeting

THE three-month Sibor or Singapore interbank offered rate has jumped to 1.12028 per cent on Wednesday from 1.07832 per cent on Tuesday as financial markets anticipate the first US rate hike in over nine years to land next week.

At 1.12028 per cent, the key benchmark rate which is used to price home loans is now more than 2.5 times higher than the 0.44437 per cent level a year ago.

The spike in the 3-month Sibor came as a bit of surprise to some as the rates had not moved much for some two months. In fact after hitting the year high of 1.13958 per cent on Sept 17, the rate eased off until Wednesday's surge.

The 3-month SOR or swap offer rate which is a benchmark for commercial loans also rose but at a more modest pace; it was higher on Tuesday to 1.44345 per cent from Monday's 1.41788 per cent.

"I half suspect that the FOMC (Federal Open Market Committee) hike next week may be a non-event as the timing of the first hike has been well telegraphed," said Selena Ling, OCBC Bank economist.

But the uncertainty is over the path of future rate hikes to come in 2016-2017, so the FOMC messaging will be important and this is the potential tail event that may swing financial markets, said Ms Ling.

"For Sibor and SOR, the dip prior to the October MPS (Monetary Policy Statement) has been relatively short-lived. But the sudden jump for the three-month Sibor at today's fixing is somewhat surprising given that overnight liquidity is still flushed (ie implying no year-end liquidity squeeze), SOR and USD-SGD are relatively stable, and there are no specific market-moving economic data releases," she said.

"It is possible Sibor is simply playing catch-up to SOR, but it'll be interesting to watch the next few days fixing to see if this is a temporary blip or sustained trend," said Ms Ling.

International rates have been rising in anticipation of the FOMC making the move next week.

"Some pent-up upward pressure is probably filtering through from rising three-month Libor (London interbank offered rate)", said Eugene Leow, DBS Bank economist.

Using (Tuesday's) 1.078 per cent as reference, the three-month Sibor has risen by barely one basis point since the beginning of November, he noted.

"Comparatively, the three-month Libor has risen by 14 basis points over the same time period," he said.


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