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Interest Rates Increased by Feds Last Night. What does this Mean For Ordinary Singaporeans?

December 15, 2016
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Last night the U.S. Federal Reserve – in a widely expected move – raised interest rates for only the second time in the last decade, but what does a rate hike all the way over in the U.S. have to do with us here in sunny Singapore? Here’s a rundown on 3 things the U.S. fed rate hike means for ordinary Singaporeans.

Online Shopping and Travel To Get More Expensive As The Singapore Dollar (SGD) Weakens Against The U.S. Dollar (USD)

As the U.S. raises interest rates, making it more attractive to investors, you can expect the SGD to weaken against the USD. In fact, since the announcement of the rate hike just a couple of hours ago as at time of writing, the SGD has hit a new 1 year low against the USD and it is highly likely that the trend will continue.

Source: XE.com

What does this mean for the ordinary Singaporean?

Well two things basically. Firstly, it means that you should get your online shopping on any website that uses USD for payment done sooner rather than later (E.g. Amazon) .

Secondly, if you like to travel or if you’re headed to a country that uses USD as a means of payment, which would be the U.S. itself as well as a number of other countries you may want to plan that trip a bit earlier. Oh and remember that there are a number of hotel and airline booking websites that use the USD as a base currency as well.

Expect Home Loans Payments And Interest Rates To Rise Alongside U.S. Rates

With the rate hike in the U.S. it would be reasonable to expect that interest rates in Singapore could follow the trend and rise as well, as early as last year, there was expectation among economists that a fed rate hike would cause SIBOR to rise and that the benchmark three month Sibor could end 2016 at around 1.5%. The rate hike has come much later than expected and the 3 month SIBOR is currently sitting at 0.926%, but that could change very soon.

A simple look at the 2 charts below, the first on SIBOR rates and the second on U.S. Fed Funds Rates quickly show a relatively strong correlation between the two. With the U.S. rate hike last night and more to come in 2017, it looks like SIBOR – which has remained relatively low over the past few years following the great recession in the U.S. – may be on the rise.

 

Source: Trading Economics

Source: Trading Economics

 

What does this mean for the ordinary Singaporean?

Home loans are typically the largest loans a Singaporean will have, if you have a home loan from a bank in Singapore, there’s a high chance that your home loan interest rates could rise very soon since most home loans from private banks are pegged to SIBOR.

This would be a good time to look at refinancing your home loan to a package that is pegged to a more stable rate, like one that may be pegged to a fixed deposit rate or a fixed rate.

With the current cheapest Fixed Deposit Home Loan Package starting from as low as 1.00% interest, and fixed rates at 1.4%, this is actually a great time to make the switch to a less risky rate and save potentially thousands in the near future.

If you’re looking to refinance your home loan or looking at a new home loan, feel free to visit us to see the best rates! Alternatively, if you need help immediately, you can call us at 6631 8980 or email us at hello@easyrates.sg for a free consultation.

However, do act fast as the banks with those special rates have already announced the removal of the package within a week.

Time To Look At Your Investment Portfolio

In the hours since the announcement of higher rates, there has been some movement in the markets. With the STI down almost 1% at time of writing, and gold falling 1.66%. If you hold a position against the USD, you’re probably having a pretty bad day right now, with the USD up pretty much against all major currencies, hitting a 14 year peak.

Source: Yahoo Finance

What does this mean for the ordinary Singaporean?

Continued U.S. rate hikes could result in increasing interest which would mean more expensive cost of funds for businesses and a stronger USD means that companies that need to make payments in USD would be paying more. If you currently own stock in highly leveraged companies or companies that have strong exposure to the USD, consider reviewing your investment portfolio.

It’s also a great time to look at investing in the USD if you’re into Forex trading.

 

We hope that we’ve helped you understand how last night’s fed rate hike affects you the ordinary Singaporean. If you have any comments or questions feel free to leave them in the section below. Love our content? Share us on facebook!

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GERRY ONG

Gerry has spent time working in 5 different banks in various capacities, across a range of functions from back to middle and front office. After leaving banking, he spent time working on market research for consumer banking with a focus on the Chinese and Singapore market. He now serves as a home loan consultant and business manager of Easyrates.

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