3-month Sibor may 'hit 1.85 by year-end'

The US Federal Reserve raised interests rates by 25 basis points to 1 per cent on Wednesday, the second hike in three months and third in a decade.

While the move boosted Singapore and Wall Street indexes, it caused the US dollar to slide.

The bad news for home owners here is that borrowing costs are likely to rise.

The three-month Singapore interbank offered rate (Sibor), which is used to price home loans, correlates with US interest rates.

After the Fed rates went up last December, the three-month Sibor rose to a year high of 0.9852 per cent on Feb 13, partly on the expectation of more hikes this year.

It now stands at 0.9390, according to lifestyle and personal finance website Get.com, after the weak greenback had eased it down.

Experts told The New Paper that they expect Sibor to rise in tandem with the latest interest hike.

ANZ economist Ng Weiwen said the three-month Sibor could rise to as high as 1.85 by the end of the year, with two more likely Fed hikes.

Said CIMB Private Bank economist Song Seng Wun: "Unless we have another downturn in economic activities, we can expect home loans to be priced up. The only questions are how much and how soon."

Ms Grace Cheng, co-founder and editor-in-chief of Get.com, said the latest Fed rate hike signals that the US is committed to more increments in the coming years.

"Given the rising interest rates outlook, it would be prudent for existing homeowners, who are... eligible for refinancing to review their home loan options to mitigate potentially higher interest payments over the next few years," she said.

She added that existing and prospective home owners could opt for fixed rate or fixed-deposit pegged home loans, which are less volatile to interest rate changes.

Mr Ng also said it may be more prudent for households that want more certainty in expense planning to turn to fixed-rate home loans.

But International Property Advisor's key executive officer Ku Swee Yong said there was no cause for home owners to panic or rush to swap their home loan packages.

"The Fed rates are just one of the things in the basket that affects Sibor, which could also be affected by other economies," he said.

Mr Ku said rising Fed rates could also spark a livelier property market.

"We know the US is looking to raise the Fed rate two more times. If the rate were to reach 1.5 per cent, I feel our Government may look at relaxing the current cooling measures," he said.

"This could be to help home owners who are struggling to cope with their mortgages as a result of more expensive home loans and may wish to sell."

Mr Ng also said the recent adjustments to property cooling measures shows the Government is aware of developments in the US Fed rate.

But Mr Song said the property market would be best left to its own demand and supply forces, regardless of rising interest rates.

This article was first published on Mar 17, 2017. Get The New Paper for more stories.