As widely expected US Fed cuts the fed funds rate for the third time this year to a range within 1.50-1.75%, following its latest Oct FOMC.
Lowest Fixed 3.15% (Min $500k)
However, it also dropped the language from previous statements “to act as appropriate to sustain the expansion”, signalling it may now pause rate cuts unless the economy deteriorates. Recent signs have pointed to more clarity in uncertainties hitting global growth including US-China trade talks and Brexit. Fed Chair Jerome Powell commented “We took this step to help keep the US economy strong in the face of global developments, and to provide some insurance against ongoing risk”. He added that with the latest cut, “the monetary policy is in a good place.” The market took that to mean that unless economic activity worsens, that might spell the end of a series of “insurance cuts” or mid-cycle cuts for the time being.
In terms of numbers, US GDP grew at a much stronger than expected 1.9% in third quarter, largely due to the strength of consumer spending which is still holding up well. Unemployment remained low at 3.5%. Fed’s preferred measure of core inflation rises to 1.8% but remains subdued below Fed’s target rate of 2%.
With a total of 3 rate cuts this year of 25 basis points (0.25%) each in July, August and October, the Fed has given back almost all of its 4 rate hikes which total a full percentage point in 2018. What can we expect of 3-month SIBOR (Singapore Interbank Offer Rate), the benchmark interest rate, here in Singapore?
With the previous two cuts in July and August, we noted SIBOR in Singapore hasn’t dropped as much as we would expect of the same magnitude in the US funds rate. After July, 3-month SIBOR has since dropped back to be more or less on par with 1-month but both have hovered in 1.87-1.88 range since for past few months. It was not until last week that both finally moved slightly down to 1.82-1.83. All eyes will be SIBOR for the next few weeks. After all, if fed funds rate have now crashed by 75 basis points (0.75%) since July, you would expect SIBOR to at least be dragged down by half of that? Hence, we estimate that 3-month SIBOR might reach 1.60 range by end of the year.
Lowest Fixed 3.15% (Min $500k)
Still we noted the correlation between the fed funds rate and 3-month SIBOR is not 100% perfect, but there is definitely a strong correlation with some lags here and there throughout the past decades.
Fixed Rates To Go Lower?
Those who have been following mortgage interest rates here in Singapore would know that banks have been using fixed rates to win business in the past few months whilst SIBOR stayed stubbornly up. Two-year fixed rates are now lower than SIBOR floating rate in general which may be the scenario when the interest rate cycle turns.
One bank has just rolled out fixed rate package at a new low – 1.82% for 2-year fixed rate subject to a minimum loan of $601,000. This might not be the end of it, but as we have already argued – fixed rates are now much nearer to the historical lows than before and we may not even hit those levels!
We put the historical lows of fixed rates at 1.38-1.48% but remember US Fed has only unwind about a third of its total of 9 hikes from Dec 2015 to Dec 2018 to bring fed funds rate from near zero to peak at 2.50%! We may or may not get to such lows especially if US and China do strike some form of phase II trade agreements in 2020 before the US Presidential mid-terms.
Speak to our team of consultants here at MortgageWise for the best home loan rates, along with great exciting rewards when you choose to take the loan through us.
Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, seeking to build trust with clients over the longer term rather than product-peddling for quick one-time deals. So, be it to refinance home loan, or to buy your next condo in Singapore, speak to our dedicated team of mortgage consultants here for the best home loan rates.