Even Sibor is now at record low!

One of the main benchmark interest rates here fell by nearly 20% to a record low of 0.36% last week, after hovering around 0.44 for a year.

The three-month Singapore inter-bank offered rate (Sibor) or interbank rate is a widely used reference point for loans such as mortgages.

Local interest rates have plunged to all-time lows, following the US long-term debt rating downgrade, as well as a pledge by the US Federal Reserve to keep US rates at rock bottom levels till mid-2013.

This has led to fund inflows from investors looking to havens such as Singapore.

In another first, the other commonly used benchmark, the swap offer rate (SOR), fell below zero last week. Yesterday, it was at -0.0981, slightly up from its record low of -0.69870 last Thursday. While this may give borrowers more reason to cheer, analysts caution that such low interest rates may not be good for the economy in the long run.

UBS chief investment strategist for Singapore Kelvin Tay said cheap loans may mean the property market is too buoyant.

HSBC chief economist Leif Eskersen said he does not think that rates are likely to rise in the near future. OCBC economist Selena Ling agreed, saying that she expected short-term Sibor to remain low.

Local banks have not declared any plans to increase spreads – the gap between the cost of funds and the rate at which they are lent to customers. A DBS Bank spokesman said the bank has not increased the spread on Sibor loans, and would “continue to price loans based on the tenure and size of the loan, as well as the credit risk rating of our corporate customers”.

Maybank consumer banking head Helen Neo said spreads for Sibor loans had not gone up. The bank uses Sibor mainly for home loans.

HSBC’s head of retail banking and wealth management, Mr Paul Arrowsmith, agreed, saying: “HSBC is monitoring the market situation closely to ensure that our package remains competitive.” Currently, the bank only offers Sibor-pegged loans.

However, analysts do not think the low interest rates and moderating loan growths will substantially affect the local banks’ net interest incomes in the third quarter.

Source: The Straits Times

The falling Sibor rates is good news indeed, especially to the wife and I who have recently taken up a home loan pegged to Sibor (and were red in envy when SOR went negative!).

However, we cannot help but wonder if our banks will start pulling back on Sibor-linked home loans if such rates are to go negative too (unlikely scenerio but will you bet against it happening?), much like what they have done with their SOR packages.

So back to the good old days of fixed-interest loans, maybe...?