RELIEF may be in sight for anyone in Singapore with a mortgage, or who plans to borrow money to buy a home or make another major purchase.
A growing consensus has emerged among economists and bankers here that interest rates may have peaked.
In Singapore, the key interest rate to watch is the three-month Singapore Interbank Offered Rates (Sibor) - the rate at which banks lend to each other.
The Sibor tends to affect all other rates such as the mortgage rates home owners pay.
Experts now believe the Sibor could drop to 3 per cent by the end of next year - after surging from 1.5 per cent in January last year to hit a peak of 3.56 per cent in July.
The reasons for this include a recent fall in global energy prices and a less-than-sanguine outlook for the United States economy.
While a US slowdown may not be good news for trade-dependent Singapore, the downtrend is a welcome respite for those with mortgages. They have been severely hit by the spiralling mortgage rates since last year.
The Sibor is now hovering at 3.43 per cent, after falling in tandem with the general decline in crude oil prices, which are now trading at US$60 per barrel. They have declined since hitting an all-time high of US$77 in July.
'The falling oil prices have eased inflationary pressures in Asia. While inflation doesn't hit Singapore directly, it does seep into our economy through trading activities with our neighbours,' said Standard Chartered Bank (Stanchart) economist Joseph Tan.
Stanchart, he said, expects the Sibor to taper off to 3 per cent by the end of next year. This would be in line with an anticipated rate cut in the US, which the bank expects as early as the third quarter of next year.
Others, however, believe it could be sooner, judging by the pessimistic outlook spelt out by the economic advisers to US President George W. Bush on Wednesday.
The White House Council of Economic Advisers downgraded its forecast for US economic growth this year to 3.1 per cent from 3.6 per cent, while trimming expectations for next year from 3.3 per cent to 2.9 per cent. It blamed the downturn in the US housing market for its revisions.
The move sparked a fresh round of market speculation that the US central bank, the Federal Reserve, would start cutting its benchmark overnight rate, which now stands at 5.25 per cent.
'It's very hard to say (where interest rates are headed), but you could check the federal funds futures market,' the Monetary Authority of Singapore (MAS) principal economist, Mr Ng Bok Eng, told reporters on the sidelines of an economic forum yesterday.
Analysis of federal funds futures, which are used as a market barometer to gauge where US rates are headed, indicate that there is a 16 per cent chance of a rate cut in March and a 56 per cent chance in May - the two months US central bankers meet next year.
Given a sustained decline in the Sibor, savers face the possibility of less interest earned on deposits. But mortgage rates could drop, even though they tend to lag behind any movement in local interest rates.
'Banks typically review their home loan rates from time to time, to ensure that they are in line with the market and interest rate environment,' OCBC Bank head of consumer secured lending, Mr Gregory Chan, said. Floating-rate home loans, rather than those with fixed rates, are not necessarily the obvious choice for those betting on a decline in interest rates, say banks. Home owners, they said, should take into account the features attached to each home loan package, such as the lock-in period.
azrin@sph.com.sg
