Low Interest Rate Environment

[donutte]

Interest rate in the US, Singapore and HK have stay very low ever since the dot com bubble. It has fuel the housing bubble in US and created property bubble in Singapore, Hong Kong and emerging markets.

With inflation looming as cost of commodities hit new highs will this low interest environment still be stainable in the long run? How much longer can low interest rate be sustain with the Federal Reserve printing money and resulting in inflation worldwide?

If interest rate were to be raised substantially in the near future what will be the impact of REITs in the Singapore and to the corporate world that is so use to such low interest rate.

Will the central banks worldwide especially ECB and US Federal Reserve raise interest rate to contain inflation or keep interest rate low to charge up their economy while inflation run rampant?

Anyone can make sense of this and give me your thought on this?

[Musicwhiz]

My opinion:-

Rising interest rates will raise borrowing costs for REITs which are seeking to refinance their debt, and also make it harder for them to acquire yield-accretive properties. This will make REITs less attractive as they will have to reduce payouts to fund the rising interest costs.

On the property market, rising rates should cool the market as more people have to pay more for their mortgages.

[corydorus]

What condition will then SG government raise interest rate?

[koh_52]

Only china can easy easy raise interest rate...no choice they have to fight inflation.

Many yrs ago Japan IR at zero% , than carry trade surfaced...when the govt raised the rate by 1% the whole economy plunged, money disappeared from the market..

Hmms, wat situation SG will raised IR?
I think SG interest rate will be maintained at this level for the next 2 yrs, cos they do not want to rock the boat,so they appreciate SGD to hedge inflation. On top of that, our is only a tiny economy as compare to China & Japan, no effect...it will only happen when there is a major external crisis, bigger than sub-prime...sure to come 1day but when?

[yaosheng]

with regards to singapore's situation, our interest rate movements are largely tied to global interest rates (a major driver being those set by the Federal Reserve).

singapore allows for free capital movement. with us interest rates low and USD devaluing, singapore interest rates will remain low as well as speculators will be able to profit on currency appreciation from SGD.

[donutte]

So SG interest rate seems to be very much tie to the US or at least been positively correlated.

So if the Federal Reserve is facing with an inflation problem my guess is they will start raising rates even though the US economy is still stagnant.
For the good of any country I believe containing inflation is always more important than economic growth as the downside of runaway inflation is more painful.

I am making a bold prediction that inflation will soon be upon the US and they will have to start to raise rates as the Fed is printing an obscene amount of money in QE2.

[corydorus]

Where the printed money go to ?

[donutte]

The printed money goes to buy up bonds that the fed sold to government and banks all over the world. By buying the bonds back it flush the holder of the bond with US dollar. So with US dollar cash other government and banks will reinvest either in commodities like US companies, oil, gold and even soybean, coffee, corn, wheat etc. This will make things more expensive for citizens like us which is term as inflation.

[freedom]

Where the printed money go to ?

most goes to the property, definitely not your salary.

why do you think the property is so expensive nowadays, but wage seldom moves...

[corydorus]

Tend to agreed with donutte that the Govs most likely use the money to buy each other bonds.
But i feel more will go to fuel gov employees salary and deficits.

Which can be welfare, subsidy, national defense which may not be effective in fixing the economic issue directly mainly in private sector which is in the majority. The property probably get indirect benefits who gains from the above. But from what we see in US, is quite minimal.