Property buyers can take advantage of falling interest rates, brought about by the tightening of the Singapore dollar, which attracts capital influxes.
After the Monetary Authority of Singapore (MAS) appreciated the local unit to stem inflationary pressures, the key three-month Sibor (Singapore interbank offered rate) fell to 0.64583 percent yesterday from 0.65625 percent on Wednesday. The government has revised upwards economic growth from 4.5 percent to 6.5 percent to seven percent to nine percent. It also raised its 2010 forecast for consumer price index inflation by half a percentage point to 2.5-3.5 percent.
According to economists, the Singdollar’s upward floating band policy tackles goods price inflation, but also gives a guaranteed return in currency terms to foreign investors buying local units or assets.
“Before the US Federal Reserve raises its interest rates, you have a sweet spot for investors, barring incidents,” said Wei Zheng Kit, Citigroup director, Asia Pacific economic and market analysis. “It (Singdollar tightening) has a perverse effect on asset price inflation and other tools may be needed to tackle this,” he added.
Several economists anticipate that the Singdollar will continue to appreciate until the end of 2010.
Mr. Philip Wee, senior currency economist of DBS, said that he sees the USD/SGD testing its record low in the next six to 12 months.
“We now see USD/SGD falling to 1.34 (again) by end-2010 instead of 1.38. The new forecasts are consistent with the one-off 1.875 percent appreciation via the re-centring and the return to a 2.1 percent annual appreciation path,” he said.
The Singdollar remained strong yesterday. It was $1.3743 against the US dollar, from $1.3769 on Wednesday.
Banks have been quick to offer cheaper home loan packages to borrowers.
The current promotion of DBS’ popular three-year fixed rate package charges 1.99 percent for three years, down from its regular 2.20 percent package.
“The latest promotion includes a protection element – mortgage insurance called My Protector Mortgage,” said Ms. Fen Peh, a spokesperson of DBS. “Customers who choose to take up this promotion for our three-year fixed rate will enjoy preferential rates of 1.99 per cent for the first three years,” she added.
However, many expect that local interest rates will rise, as soon as the US hikes its interest rates, which could be towards the end of the year. In the meantime, some think that the MAS could intervene to prevent asset bubbles.
Ms. Selena Ling, an economist of OCBC, said: “Monetary policy tightening may fuel SGD appreciation expectations, and may attract further capital inflows, which should prove beneficial to the SGS bond market, at least for the shorter tenures.”
“Liquidity management will likely take on an even more prominent function to drain excess liquidity conditions from further fuelling any potential asset bubbles in the making.”