BankBazaar Singapore – January 3, 2018
SINGAPORE: While analysts and market participants are mindful of the fact that the Monetary Authority of Singapore (MAS) might start normalising the policy rates this year, the market remains confident that strong fundamentals and a weak USD means that there is still scope for appreciation.
Short-term SGD rates continue to move upwards as the 3M LIBOR (3-month London InterBank Offer Rate) aims higher. While the 3M SIBOR (3-month Singapore InterBank Offer Rate) has risen by 30 basis points over 2017 to end at 1.5%, the 3M SOR (3-month Singapore Dollar Swap Offer Rate) has fallen by 60 basis points over the year to settle at 1.11%. The 3M LIBOR has ended at 1.69%, up by 110 basis points, in 2017.
Even as the fundamental weakness in USD continues to apply downward pressure on SGD rates, the rising LIBOR has counterbalanced its effects by putting upward pressure on the currency.
The market is positioning itself for policy tightening, amid a feeling that the robust economic performance might continue in 2018. The Q4 2017 GDP growth beat the market expectations handsomely – 3.1% year-on-year against the general consensus of 2.6% y-o-y.
This can be gauged better by the fact that 3M SOR, which is more reactive to the foreign exchange currency market speculations and expectations, continues to remain below 3M SIBOR, the short-term benchmark rate that banks use to calculate the cost of borrowing unsecured funds from each other.
Another way to gauge the market mood in relation to expected policy tightening is by looking at the forward points which have continued to move deeper into the negative territory. As the market continues to offset weakness in SGD rates with continuing appreciation of the SGD against the USD, the forward point rates continue to slip.
It needs to be noted here that the performance of the currency also depends on the performance of other Asian currencies, partner currencies and policy decisions made by MAS in the future.
Naysayers continue to worry that the SGD may depreciate for the first three quarters in 2018 due to likely interest hikes by the US Federal Bank. Meanwhile, GDP growth is expected to soften to 2.7% against the projected 3% rise for the year, and the consumer price inflation (CPI) numbers – currently moving between the 0.45 to 0.6% y-o-y – could possibly increase. So, many still believe that SGD will test the September high of 1.3346 it saw against the greenback and settle around the 1.4 mark at the end of 2018.