Interbank lending rates have declined to a record low in Singapore, shrugging off concerns from some market watchers that cheap lending may overheat the country’s real estate sector.
Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore (MAS), said the decline in Sibor rates partly reflects market expectations of a stronger Singapore dollar, following a move by the MAS to a currency appreciation policy from a neutral policy in April.
The Singapore Inter-Bank Offered Rate (Sibor) refers to the interest rates at which banks in Asia borrow money from other banks within the region. It is a primary component used by banks in setting up their home loan rates. DBS said that the three-month Sibor fell 0.52 percent at end-April, and is expected to remain low.
Irvin Seah, an economist from DBS, said the low interest rates encourage speculations in the asset market, particularly in the property sector, unless "administrative controls are put in place to keep the lid on asset inflation".
The Singapore government had implemented several measures to cool down property prices, but risks remain on the scene and more cooling measures may likely be implemented, said Mr. Seah.
David Carbon, head of economic and currency research at DBS, said that the Sibor rate is expected to decline to near-zero levels, at 0.40 percent by Q3.
However, several market watchers do not see the rates fall any further.
Vishnu Varathan, a forecast regional economist, stressed that the Sibor will follow the rates of the US Federal funds, which are currently at the bottom level.