Singapore Economic News

[greengiraffe]

http://www.businesstimes.com.sg/energy-c...micals-hub

Falling value and output raise questions about S'pore chemicals hub
Chemicals' value added has fallen from its peak of S$7.36 billion in 2004 to S$3.98 billion in 2013

By
Teh Shi Ningtshining@sph.com.sg@TehShiNingBT
jurongis12.jpg THERE has been a flurry of openings, ground-breakings and investment announcements on Jurong Island this year, but the latest available numbers tell a less bullish story of Singapore's chemicals cluster. -- PHOTO: JTC CORPORATION
24 Nov5:50 AM
Singapore

THERE has been a flurry of openings, ground-breakings and investment announcements on Jurong Island this year, but the latest available numbers tell a less bullish story of Singapore's chemicals cluster.

Chemicals value added fell to its lowest level since 1999 last year - with the exception of 2008's global financial crisis-induced plunge - and has been on a downward trend since 2010. Output too, has fallen since 2011. (see infographic)

Though in part due to rising oil prices and the global economy's slow recovery from its 2008 meltdown, chemicals' decline here also raise broader questions of whether Singapore's chemicals hub can stay ahead of global competitors, and whether a strategy like that of Jurong Island - massive public investments to anchor an industry here - is still relevant to the Singapore economy today.

Last year, the chemicals sector contributed to just 1.3 per cent of the economy's nominal value added, compared to electronics' 5.6 per cent contribution. In absolute terms, chemicals' value added has fallen from its peak of S$7.36 billion in 2004 to S$3.98 billion in 2013.

Chemicals output rose as investments flowed in and plants revved up, from S$53.3 billion in 2004 to S$99.4 billion in 2011 but fell to S$97.1 billion in 2013.

The Singapore Economic Development Board (EDB) explained the downwards drift in value added as a function of slower demand - which has hit the manufacturing sector as a whole - and the chemicals sector's sensitivity to oil price movements.

"As Singapore is a price taker for both energy and feedstock, which are primarily oil-linked, this has resulted in squeezed margins of the refining and petrochemicals, translating to lower value-added," EDB director of Energy & Chemicals, Eugene Leong, told BT.

Other observers added that rising oil prices coincided with a ramp-up in global chemicals production. The shale revolution in the US also produced cheaper natural gas which gives American producers a significant cost advantage. This triple whammy has squeezed margins and value-added from the chemicals sector here, they said. Competition is closing in with rising investments in petrochemicals in the region, rising supply from the Middle East and China's shift up the value chain.

To give some perspective: refining capacity - which produces the feedstock for chemicals - in the Middle East rose 6.9 per cent in 2013 from 2012 while China expanded capacity by 5.6 per cent, according to the BP Statistical Review of World Energy 2014. Singapore produces 1.4 million barrels daily, or 1.5 per cent of the world's total refining capacity. This is dwarfed by China's capacity for 12.6 million barrels daily, or 13.3 per cent of total global refining capacity. Singapore is ranked 17th in refining capacity in the world.

While the long-term competitiveness of Singapore's petrochemicals industry was addressed in a Monetary Authority of Singapore research paper as far back in 1999, the latest developments and figures do ask questions of the sector, particularly given the huge and deliberate public investment and planning over the past few decades to anchor petrochemicals activities here.

"I would like to see how much linkages these new investments have with the rest of the Singapore economy. How do these new plants provide demand for the rest of the Singapore economy? What is the division in value added between profits and wages and what share of these profits are remitted abroad by the foreign investor? What sort of tax incentives and subsidised land were offered to the foreign investors to locate here?" said Manu Bhaskaran, founding director of economic research and consultancy firm Centennial Asia Advisors.

These are questions that need to be answered, to gauge the efficacy of Singapore's Jurong Island push, he said.

To Mizuho Bank economist Vishnu Varathan, the Jurong Island strategy could be seen as one of "picking winners". "Singapore picks not just one basket, but rather carefully selects a variety of baskets to concentrate the eggs in. So there is some diversification, or hedge."

For an acutely resource-constrained economy like Singapore's, this model of a concerted push to develop certain industries makes sense. "(This) often expedites and enhances the creation of an eco-system of requisite logistics, supply-chain and human capital," he added.

Will that be sufficient to keep Singapore ahead of emerging petrochemicals hubs in the region? "While there is greater competition, in South-east Asia even, it is not easy to have upstream and downstream presence. Once invested, the sunk costs for companies are very high, so you need a whole host of conditions - land, political stability, infrastructure. I don't see why Jurong Island won't continue to be a key site in processing petrochemical output for regional demand. There are no obvious alternatives for now," said National University of Singapore economic geography professor Henry Yeung.

The government's view is that Jurong Island has catalysed other activities in Singapore. There are more than 400 companies trading in petroleum and petroleum products in Singapore, for instance, a development supported in large part by the storage capacity available. Oil majors and downstream industry leaders have also chosen to locate regional or international headquarters in Singapore, generating activity in marketing and sales, research and development, logistics and other business services.

EDB remains positive about Singapore's chemicals cluster and hopeful that more investments into the specialty chemicals segment - which is also subject to oil price volatility but to a lesser extent - will raise the sector's overall value-added contribution to the economy, Mr Leong said.

Specialty chemicals' contribution to chemicals output may have held steady at a consistent 10 per cent since 2004, much smaller than petroleum and petrochemicals output, but it is now adding more value. In 2013, as poor refining margins hit the petroleum sector, specialty chemicals hauled in 60 per cent of chemicals value added, up from 20 per cent in 2004. As a proportion of its own output, however, specialty chemicals value-added dipped from 32 per cent in 2004 to 25 per cent in 2013.

* New plan, rethink for Jurong Island

* Chemical reaction

[greengiraffe]

http://www.businesstimes.com.sg/governme...res-growth

Global headwinds may slow Singapore's growth
MTI flags downside risks to 2015 forecast, even as Q3 GDP surprises with 2.8% expansion

By
Kelly Taykellytay@sph.com.sg@KellyTayBT
32780096777.jpg A litany of external risks could throw the official 2-4 per cent growth forecast for 2015 off-course, even as the government announced better-than-expected Q3 GDP numbers and projected economic growth of "around 3 per cent" for 2014. ST PHOTO
26 Nov5:50 AM
Singapore

A LITANY of external risks could throw the official 2-4 per cent growth forecast for 2015 off-course, even as the government announced better-than-expected Q3 GDP numbers and projected economic growth of "around 3 per cent" for 2014. (see infographic)

The Ministry of Trade and Industry (MTI) said on Tuesday morning that Q3 GDP grew a stronger 2.8 per cent year-on-year, thanks to further expansion in both the manufacturing and services sectors. This beat not only the initial flash estimate of 2.4 per cent growth, but also the market's expectation that this could be raised slightly to 2.5 per cent.

But any cheer from Q3's upside surprise was dampened by MTI's cautious outlook for the rest of this year and into 2015, several economists pointed out.

"The message here is really don't be too upbeat. MTI is saying, here's a better number (for Q3), but hold your horses because there's a whole laundry list of external risks," noted Mizuho economist Vishnu Varathan.

MTI said GDP growth for the first three quarters stands at 3.3 per cent year-on-year, but it expects growth to "ease slightly" for the rest of 2014 in line with a projected slowdown in the global economy. It expects Q4 growth at 2.2 per cent year-on-year.

And although MTI anticipates global growth to "pick up modestly" in 2015, it qualified that the pace of recovery is likely to remain uneven across different economies. Growth in the US is expected to improve on the back of domestic demand, while key Asean economies like Malaysia and Indonesia are projected to stay resilient, supported by healthy investment growth. But the picture elsewhere is less sanguine.

MTI expects the pace of recovery in the eurozone to remain weak, since ongoing tensions involving Russia and Ukraine have dampened business and consumer sentiment, and sluggish labour market conditions continue to weigh on growth in the region. In Asia, economic expansion in Japan and China is seen being capped - because of fiscal consolidation efforts in the former, and sluggish real estate activities in the latter.

On top of this, MTI permanent secretary Ow Foong Pheng said that further downside risks remain: "In the eurozone, there are concerns that its economy will fall into a deflationary spiral ... In the US there are uncertainties over when, and the pace at which the Federal Reserve will raise the Fed funds rate. An unexpected tightening of monetary policy conditions would weigh significantly on the US's financial markets and business sentiment ... In China, there is a risk of a sharp correction in the real estate market, which could have severe negative spill-over effects on construction and real estate investment activities."

Because the government's 2015 growth forecast does not account for these risks - "barring the materialisation of downside risks highlighted, the Singapore economy is expected to grow by 2-4 per cent in 2015," said Mrs Ow - growth next year could come in lower than projected.

While CIMB economist Song Seng Wun described MTI's position as "extremely cautious," Bank of America Merrill Lynch economist Chua Hak Bin said: "Overall, they're a tad bearish and that's aligned with our assessment as well. Growth is going to continue to struggle on, because these external risks add to our domestic constraints. On balance, there are more downside risks than upside ones."

As for concerns over the eventual rise in interest rates, MAS chief economist and assistant managing director Edward Robinson said: "At that point in time, it would also mark the restoration of growth in the US onto a sustainable path, which would be net positive for global growth and therefore supportive of economic activity in small open economies including those in the region."

After seasonal adjustments and on an annualised basis, the Singapore economy grew 3.1 per cent in Q3 - better than the flash estimate of a 1.2 per cent expansion. The market had been expecting a revision here too, to 1.5 per cent.

Thanks to growth in the biomedical manufacturing and chemicals clusters, the manufacturing sector expanded 1.9 per cent year-on-year, up from 1.5 per cent in Q2. Growth in the services sector accelerated to 3.4 per cent year-on-year in Q3, up from 2.6 per cent the quarter before. Expansion was driven by the finance & insurance sector, which surged to grow 10.5 per cent in Q3 - nearly double the Q2 pace of 5.5 per cent.

While MTI thinks externally-oriented sectors such as manufacturing, wholesale trade, and finance & insurance are likely to provide support to growth next year, it reiterated that labour-intensive domestically-oriented sectors (including retail and food services) may see their growth weighed down by labour constraints.

* Labour costs up again, productivity dips further

[greengiraffe]

Must find out Singapore's GDP right now? Now there's an app for that and other key statistics
Published on Nov 25, 2014 9:57 AM


The SingStat app provides users easy access to key official statistics in the form of some 200 charts from 25 data categories. -- PHOTO: DEPARTMENT OF STATISTICS

The public can now access key official data on Singapore while on-the-go with the SingStat mobile application launched on Tuesday by the Department of Statistics (DOS).

And the app is free.

Jointly developed by DOS and the InfoComm Development Authority of Singapore (iDA), the SingStat app provides users easy access to key official statistics in the form of some 200 charts from 25 data categories.

They include including gross domestic product, population, prices, labour, manufacturing, services and international trade.

[greengiraffe]

Asset inflation and impact of over-crowding hurting real income growth of Singaporeans?

http://www.businesstimes.com.sg/governme...ome-growth

Higher inflation eats into income growth
Resident workers' real income up just 0.4 per cent in 2014, a pale shadow of the 4% jump in 2013

By
Chuang Peck Mingpeckming@sph.com.sg@PeckmingBT

Higher inflation took a bite out of resident workers' income growth, reducing it to under one per cent in real terms this year - even as the labour market has stayed tight. PHOTO: ST
29 Nov5:50 AM
Singapore

HIGHER inflation took a bite out of resident workers' income growth, reducing it to under one per cent in real terms this year - even as the labour market has stayed tight.

The latest Singapore Workforce report put out by the Ministry of Manpower says that the nominal median monthly income (including employer CPF contributions) of full-time resident workers (meaning Singaporeans and permanent residents) rose 1.8 per cent over the year to S$3,770 in June 2014.

But the real median income - that is, with inflation factored in - inched up by just an estimated 0.4 per cent.

The slowdown in income growth is all the more stark, given that it comes after what the report described as "exceptionally high increases" in 2013; the median monthly income of resident workers had jumped 6.5 per cent in nominal terms, and 4 per cent in real terms last year.

The big jumps could have come from the launch of the government's Wage Credit Scheme that year, which encouraged employers to give bigger wage increments, said the report.

Higher inflation as measured by the Consumer Price Index has weighed down resident workers' real income growth in recent years - even with sustained increases in nominal income.

Between 2009 and this year, the median income of resident workers jumped 29 per cent, or 5.2 per cent a year in nominal terms. This was slightly higher than the 26 per cent or 4.7 per cent yearly growth between 2004 and 2009, said the report.

But in real terms, median income grew only 9.7 per cent or 1.9 per cent yearly from 2009 to 2014, lower than the 13 per cent or 2.5 per cent yearly gains in the 2004-2009 period, it said.

Singapore's inflation came to 1.7 per cent in 2004, 0.4 per cent in 2005, one per cent in 2006, 2.1 per cent in 2007 and 6.5 per cent in 2008; 0.6 per cent in 2009, 2.8 per cent in 2010, 5.3 per cent in 2011, 4.5 per cent in 2012 and 2.4 per cent in 2013.

The Monetary Authority of Singapore expects the average inflation to fall by between one and 1.5 per cent this year, and by 0.5 and 1.5 per cent in 2015.

While income growth has eased, the labour market has continued to be tight. The report noted that the seasonally adjusted resident jobless rate stood at 2.8 per cent in June, down from 2.9 per cent in June 2013.

With more women and seniors returning to work, the resident employment rate for workers aged 25 to 64 hit a new high of 79.7 per cent in 2014; in 2013, it was 79 per cent, and in 2004, 72.3 per cent.

The employment rate of women in the prime-working ages of 25 to 54 edged up from 74.3 per cent in 2013 to a record 76 per cent this year; that for residents aged 55 to 64 reached a new high of 66.3 per cent, up from 65 per cent last year.

The resident labour force participation rate rose for a third straight year to a record 67 per cent, driven by continued increases in women and senior citizens looking for work.

The report said: "Reflecting ongoing initiatives for better work-life integration, the participation rate for females rose from 51.3 per cent in 2004 to 58.6 per cent in 2014."

Over the decade, the resident female labour force participation rate grew 3.5 per cent yearly, against 2.9 per cent for men. This brought the share of women in the 2.19 million strong resident workforce from 41 per cent in 2004 to 45 per cent this year.

The participation rate for older residents, those aged 55 to 64, surged from 49.5 per cent to 68.4 per cent over the same period, "reflecting tripartite efforts to enhance the employability of older workers".

For those aged 65 to 69, the rate jumped from 18.9 per cent in 2004 to 41.2 per cent in 2014.

[greengiraffe]

Its a relief from high base not deflation since there remains supply side concerns...

http://www.businesstimes.com.sg/governme...er-for-now

Singapore safe from deflation danger, for now
November’s CPI may see first negative inflation reading in 5 years

By
Teh Shi Ningtshining@sph.com.sg@TehShiNingBT
Deflation has emerged as a new global concern, as oil prices plunge and growth slows. In Singapore, however, the alarm bells aren't ringing yet. PHOTO: ST
3 Dec5:50 AM
Singapore

DEFLATION has emerged as a new global concern, as oil prices plunge and growth slows. In Singapore, however, the alarm bells aren't ringing yet. (see infographic)

Singapore may see its first negative monthly inflation in five years before the year's end with the release of November's consumer price index (CPI), but most economists see no reason to expect damaging deflation - a persistent fall in prices typically triggered by a sharp contraction in demand.

Deflationary pressures so far have shown up in Singapore as a bout of disinflation - slowing price increases - that is expected to extend into the new year.

The recent slide in the price of oil has amplified other Singapore-specific disinflationary factors that were already there: the softening property market and lower home rentals, car certificate of entitlement (COE) premiums falling from last year's highs, and healthcare subsidies bringing down medical costs. ''Fleeting negative headline CPI prints from the supply-side must not be confused with demand-side deflation,'' said Mizuho Bank economist Vishnu Varathan.

Compared to the last bout of disinflation that Singapore experienced in 2009, during the global financial crisis, recent low inflation does not signal a slump in aggregate demand, said CIMB economist Song Seng Wun.

''In fact, real incomes may even be lifted slightly by lower inflation. Psychologically, people may feel that they are better off with lower energy costs . . . that could help support consumption too,'' he said.

Lower oil prices could be positive for consumers and a boon for Singapore's exporters to the extent that they boost export demand from developed economies, said Credit Suisse economist Michael Wan.

Hence, even if the headline inflation rate here slips into negative territory for November - October's inflation rate was already 0.1 per cent - that should be seen as a ''negative distortion'', said Barclays economist Leong Wai Ho. He thinks core inflation will keep stable at 1.5-2 per cent in the coming months, which would show that demand conditions have not weakened materially and there are no undue deflationary forces.

This is in line with the government's view, that core inflation will ''remain firm'' due to persistent wage pressures that will continueto filter through to the cost of various services. The authorities project core inflation of 2-3 per cent in 2015, but a lower 0.5-1.5 per cent headline inflation rate due to the anticipated rise in the supply of car COEs and housing units.

Other readings are less sanguine, suggesting that it's more than just a supply-side question. Manu Bhaskaran, founding director of economic consultancy Centennial Asia, sees other disinflationary forces at work.

''Higher costs and a loss of profitability and competitiveness that are causing companies to re-engineer through downsizing, relocation, exiting Singapore, or pressing suppliers to reduce prices of inputs . . . These are inherently disinflationary,'' he said.

Pointing to weak consumer spending, Citi economists Kit Wei Zheng and Yap Kim Leng said: ''While the tight labour market will continue to raise business costs, weak domestic demand will cap pricing power and increasingly force businesses to absorb higher costs in their margins.''

In a report on Monday describing Singapore's inflation as being ''at perilously low levels'', Mr Bhaskaran also said that he thinks the Monetary Authority of Singapore (MAS) ''has to loosen monetary policy''. ''There is virtually no inflation risk but there is a growing risk to economic growth. If anything, the risk is of disinflation as export competitiveness is gradually eroded by the tight labour market and rules on employing cheaper foreign workers.''

The Citi economists too do not rule out central bank easing in April 2015, though they see a greater 40 per cent chance of a reduction in the slope of the band in October next year. But they think that without cracks surfacing in the jobs market, core inflation falling under 2 per cent may not be enough to sway the central bank from its current position.

Indeed, the consensus view for now is still that cost pressures emanating from the tight labour market will keep the central bank in its current policy position of allowing the Singapore dollar to appreciate against a basket of its trading partners' currencies to ward off imported inflation.

''MAS will require greater comfort about latent wage pressures diminishing. For now though, tight labour market conditions make for tied hands at the MAS,'' said Mr Varathan. In his view then, the lower inflation still ''falls short of triggering a dovish response'' from the central bank.

[FA+TA]

Slow China Growth, Uneven Global Recovery Hampers Singapore's Economy
By Sara Chen -- Jan 2, 2015
Singapore’s economy expanded less than economists estimated last quarter after its manufacturing industry weakened with slowing growth in China and an uneven global recovery.

Gross domestic product rose an annualized 1.6 percent in the three months to Dec. 31 from the previous quarter, when it expanded 3.1 percent, the trade ministry said in a statement today. The median of five estimates in a Bloomberg News survey was for a 3 percent expansion.

Singapore’s productivity growth has been weak, Prime Minister Lee Hsien Loong said on Dec. 31, and the trade ministry has said the economic outlook for 2015 is “modest” with a tight labor market restraining some industries. The export-dependent island is also adjusting to a China on track to record its weakest full-year growth in almost a quarter century, even as the U.S. saw its biggest expansion in more than a decade in the third quarter.

“It caps a pretty moderate year for growth,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG, who predicts the Southeast Asian nation will expand 3.5 percent in 2015. “China’s slowing, Japan’s pretty moribund, Europe’s still essentially going nowhere,” with only the U.S. providing some relief in the global economy.
Manufacturing Decline

A Chinese manufacturing gauge slipped to the lowest level in 18 months in December, data showed yesterday, adding to evidence that the economy probably grew last year at the slowest pace since 1990, according to analysts surveyed by Bloomberg News. Meanwhile, the U.S. expanded at a 5 percent annualized rate in the three months ended in September, and a report this week showed consumer confidence at a near seven-year high.

Singapore’s GDP (SGDPYOY) grew 1.5 percent in the three months through December from a year earlier, compared with a median estimate of 1.8 percent, today’s report showed. The economy expanded 2.8 percent last year, according to the advance estimates which are computed largely from figures in the first two months of the quarter and may be revised.

Singapore’s manufacturing fell 5.8 percent last quarter from the previous three months, the trade ministry said. The services industry grew 3.8 percent in the same period, while construction expanded 8 percent.

Manufacturing also contracted from a year earlier, mainly due to a decline in the output of the transport engineering, electronics and general manufacturing clusters, the report said. Growth in construction was mainly supported by public sector activities, it said.

“If you look forward into 2015, I think there’s probably a bit more reason to think that it should improve,” said Wan. “You do have oil prices coming down, and that should be a boon for consumers, especially in the developed world, and I think that should be a positive for an open economy like Singapore.”

[greengiraffe]

http://www.businesstimes.com.sg/banking-...llar-falls

Local interest rates creeping up as Singapore dollar falls
Observers say rates will move further up even in the absence of Fed rate hikes

By
Siow Li Senlisen@sph.com.sg@SiowLiSenBT

5 Jan5:50 AM
Singapore

LOCAL interest rates have been on a slow upwards creep, and on the first working day of the New Year, rose to a 52-week high as the Singapore dollar continues to weaken against the greenback.

The key three-month Sibor, or Singapore interbank offered rate, on which most home loans are pegged rose to 0.45738 per cent on Jan 2, up 17.6 per cent from the low of 0.38885 per cent on Feb 21.

The benchmark rate had been flatlining for much of the first half of 2014 until it began its slow rise from August, then picked-up pace steadily as the USD rallied. The SGD has fallen to four-year lows against the USD. At last Friday's 1.328, it is down more than 7.0 per cent from last year's July 23 high of 1.238.

Observers say Singapore interest rates are now tied to the strength of the USD and will move further up even in the absence of rate hikes from the US Federal Reserve. Expectations are for the US Fed to raise rates in the second part of this year.

"I suspect a large part of the Sibor's upward creep is due to the SGD weakness," said Selena Ling, OCBC Bank economist.

The latest growth data released last week showed that the Singapore economy continues to slow and with not much cost pressures, the SGD is likely to remain weak.

The Singapore economy grew a weaker-than-expected 1.5 per cent year-on-year in the fourth quarter of 2014, slowing from Q3's 2.8 per cent expansion as the manufacturing sector shrank in the final quarter, said the Ministry of Trade and Industry last Friday.

Full year 2014 growth was 2.8 per cent, down from 2013's 4.1 per cent

There's also "the softer GDP growth coupled with benign inflationary environment which does not warrant an overly aggressive monetary policy stance", Ms Ling added.

Ms Ling said another factor for tighter SGD liquidity has been "intensifying competition for SGD deposits, especially over the year-end."

OCBC's forecast for three-month Sibor is 0.55 per cent and 0.69 per cent for mid- and end-2015, respectively.

DBS Bank projects that the SGD will head to 1.33 by fourth quarter 2015 and 3-month Sibor to reach 0.60 per cent then.

United Overseas Bank (UOB) is more bearish, it expects that the start of the US interest rate normalisation in June next year will see further downward pressures on the SGD this year.

Our forecast for the USD/SGD remains at 1.34/USD as of end 2Q 2015, said UOB in its Q12015 outlook.

"With the SGD Sibor positively correlated with the USD Libor (London interbank offered rate), our expectations that the US interest rate normalisation in June 2015 will see the Sibor moving on a higher trajectory in 2015.

We expect the three-month SGD Sibor to move towards 1.00 per cent by end 2015," said UOB.

Should home loan borrowers worry? Some say the pace of the increase could be a concern but as long as the absolute interest rate remains low, the hike in monthly instalments should be manageable.

On a S$100,0000 loan with 20-year tenure, the monthly instalment would rise S$11.45 to S$484.85 if 3-month Sibor moves to 0.70 per cent for a home loan package based on 3-month Sibor + 0.85 per cent, according to OCBC Bank.

Lui Su Kian, DBS Bank (Singapore) head, deposits and secured lending, consumer banking said the best time to lock in an attractive set of fixed rates is during a low interest environment. "Fixed rate packages continue to remain popular with both private property and HDB home owners, but there are also options to have both floating and fixed rates within the same programme," said Ms Lui.

[greentea]

And SIBOR jumped 26% today....

http://businesstimes.com.sg/banking-fina...ore-dollar

Sibor jumps 26% on further weakness of Singapore dollar
By Siow Li Sen lisen@sph.com.sg@SiowLiSenBT
5 Jan 6:59 PM
THE key three-month Singapore interbank offered rate (Sibor) jumped 26 per cent on Monday to 0.57762 per cent from last Friday's 0.45738 per cent as the Singapore dollar fell further, dragged down by a tumbling euro....

http://www.businesstimes.com.sg/banking-...llar-falls

Local interest rates creeping up as Singapore dollar falls
Observers say rates will move further up even in the absence of Fed rate hikes

By
Siow Li Senlisen@sph.com.sg@SiowLiSenBT

5 Jan5:50 AM
Singapore

LOCAL interest rates have been on a slow upwards creep, and on the first working day of the New Year, rose to a 52-week high as the Singapore dollar continues to weaken against the greenback.

The key three-month Sibor, or Singapore interbank offered rate, on which most home loans are pegged rose to 0.45738 per cent on Jan 2, up 17.6 per cent from the low of 0.38885 per cent on Feb 21.

The benchmark rate had been flatlining for much of the first half of 2014 until it began its slow rise from August, then picked-up pace steadily as the USD rallied. The SGD has fallen to four-year lows against the USD. At last Friday's 1.328, it is down more than 7.0 per cent from last year's July 23 high of 1.238.

Observers say Singapore interest rates are now tied to the strength of the USD and will move further up even in the absence of rate hikes from the US Federal Reserve. Expectations are for the US Fed to raise rates in the second part of this year.

"I suspect a large part of the Sibor's upward creep is due to the SGD weakness," said Selena Ling, OCBC Bank economist.

The latest growth data released last week showed that the Singapore economy continues to slow and with not much cost pressures, the SGD is likely to remain weak.

The Singapore economy grew a weaker-than-expected 1.5 per cent year-on-year in the fourth quarter of 2014, slowing from Q3's 2.8 per cent expansion as the manufacturing sector shrank in the final quarter, said the Ministry of Trade and Industry last Friday.

Full year 2014 growth was 2.8 per cent, down from 2013's 4.1 per cent

There's also "the softer GDP growth coupled with benign inflationary environment which does not warrant an overly aggressive monetary policy stance", Ms Ling added.

Ms Ling said another factor for tighter SGD liquidity has been "intensifying competition for SGD deposits, especially over the year-end."

OCBC's forecast for three-month Sibor is 0.55 per cent and 0.69 per cent for mid- and end-2015, respectively.

DBS Bank projects that the SGD will head to 1.33 by fourth quarter 2015 and 3-month Sibor to reach 0.60 per cent then.

United Overseas Bank (UOB) is more bearish, it expects that the start of the US interest rate normalisation in June next year will see further downward pressures on the SGD this year.

Our forecast for the USD/SGD remains at 1.34/USD as of end 2Q 2015, said UOB in its Q12015 outlook.

"With the SGD Sibor positively correlated with the USD Libor (London interbank offered rate), our expectations that the US interest rate normalisation in June 2015 will see the Sibor moving on a higher trajectory in 2015.

We expect the three-month SGD Sibor to move towards 1.00 per cent by end 2015," said UOB.

Should home loan borrowers worry? Some say the pace of the increase could be a concern but as long as the absolute interest rate remains low, the hike in monthly instalments should be manageable.

On a S$100,0000 loan with 20-year tenure, the monthly instalment would rise S$11.45 to S$484.85 if 3-month Sibor moves to 0.70 per cent for a home loan package based on 3-month Sibor + 0.85 per cent, according to OCBC Bank.

Lui Su Kian, DBS Bank (Singapore) head, deposits and secured lending, consumer banking said the best time to lock in an attractive set of fixed rates is during a low interest environment. "Fixed rate packages continue to remain popular with both private property and HDB home owners, but there are also options to have both floating and fixed rates within the same programme," said Ms Lui.

[CityFarmer]

I concur with the analyst view. The spike may not be sustainable...

Spike in Singapore interest rates "not the real deal", says CIMB

SINGAPORE (Jan 8): Higher interest rates are good for banks but the recent spike in short-term rates in Singapore is "not the real deal", says CIMB ( Financial Dashboard).

The three-month and six-month Singapore interbank offered rate (Sibor) have jumped by an average of 15 basis points in just two days, breaching levels not seen since April 2010.

The three-month swap offer rate (SOR) has also risen notably, up 35 basis points since Dec 17 versus a 17-point increase by the three-month Sibor over the same period.

"Although rising interest rates are great for banks' margins, we would not be hasty to declare this as a start of big interest rates upturn yet," CIMB analysts Kenneth Ng and Jessalyn Chen said in a note.

"We see recent SIBOR and SOR movements are more forex flow-driven. In the recent week, expectations of US dollar strength became accentuated because 'Grexit' is killing the euro, putting the euro in the same bear camp as the Japanese yen," they said, referring to the prospect of Greece exiting the eurozone.

"The US dollar is thus the only currency for flows to move to."

But if fears over "Grexit" fade, causing pressure on the euro to ease, the greenback could lose some strength, they said, adding that this in turn would spark a "slight retreat" in Sibor.
...
http://www.theedgemarkets.com/sg/article...-says-cimb

[valuebuddies]

I am in the process of refinancing my home loan and coincidently encountered some delays in the process last week before signing the loan contract, perhaps God grants me additional time to rethink on the decision and so I change my loan to fixed rate package. Would rather to safe then sorry...