Singapore mortgage benchmark rates climb to seven-year high

[SINGAPORE] Singapore short-term interest rates used to set mortgages surged to a seven-year high on speculation central bank activity in the currency market is resulting in rising borrowing costs.

"The authorities are buying their currencies and selling US dollars," said Hideo Shimomura, the chief fund investor in Tokyo at Mitsubishi UFJ Kokusai Asset Management. "They are absorbing liquidity from the market. The money market is drying up."

The three-month Singapore interbank offered rate climbed to 1.25300 per cent. The three-month swap offer rate advanced to 1.76235 per cent. The figures are at the highest levels since October 2008, according to data compiled by Bloomberg. While both are used to set mortgage rates, Sibor-based loans are more common, according to PropertyGuru Pte's website.

The Singapore dollar has fallen 1.4 per cent against its US counterpart this year, sliding as a rout in the Chinese yuan roiled global markets.

The Monetary Authority of Singapore maintains its dollar within an undisclosed target band against a basket of other currencies. The MAS will intervene in the foreign exchange market when the currency reaches the edge of the policy band on either side or when there is undue volatility or speculation in the Singapore dollar, according to the central bank website.

The interventions may affect liquidity by increasing or decreasing the amount of Singapore dollars in the banking system, the website says.

MUFJ Kokusai's Shimomura says it's too early to buy the Singapore dollar. "The renminbi is depreciating, and that affects Asian currencies," he said. "We are not bullish on Asian currencies. It's premature to step in."

BLOOMBERG