In its latest December FOMC, US Fed has finished what it set out to accomplish this year – four hikes in 2018.  But it has now revised downwards its forecasted number of rate hikes in 2019 from three to two, as anticipated by the market from its recent rhetoric.

Fed funds rate now rises to a range between 2.25% and 2.50%, which is a pre-cursor to what will happen to SIBOR rate here in Singapore (see graph below).  More on that later.  First let us summarize the key points from Fed’s statement.

Striking a more sombre note, the Fed in December recognizes the likelihood of a slowdown in growth in 2019 in the midst of trade tensions, a strong dollar (hitting exports) and the tapering off of stimulus from tax cuts in 2018.  It now forecast a slower growth in GDP in 2019.

Key highlights of Fed’s December FOMC statement:

• The committee now expects only 2 hikes in 2019 and possibly only 1 hike in 2020 to bring the fed funds rate to 2.9% by end of 2019 instead of the earlier forecasted 3.1%, and to 3.1% by end of 2020 instead of the earlier forecasted 3.4%.
• US GDP will grow 3% instead of 3.1% in 2018, and 2.3% instead of 2.5% in 2019 as forecasted earlier
• Unemployment rate will be at 3.7% by end of the year. Labour market has continued to strengthen with annual wage increments picking up to 3.1% in recent months
• Inflation remained subdued with core inflation (exclude volatile energy and food prices) expected to rise only marginally from 1.8% to 1.9% by end 2018 and to hit the 2% target by end of 2019

Perhaps the best indicator of the new more dovish Fed’s stance is encapsulated in Fed Chair Powells’s remark that “I do think (low inflation) gives the committee the ability to be patient going forward”.  This signals a Fed that is prepared to look at changing data trends and makes its forecast and adjustment accordingly instead of following a fixed trajectory on planned number of rate hikes.

Here in Singapore, what we noticed in the last hike by US Fed on September 27, 3-month SIBOR rate moved up by about 15 basis points (or 0.15%) within a week from 1.63% to 1.76%.  The same could very well happen again, or within a short period of time.  What we are not too certain is how high will the benchmark 3-month SIBOR rate ises to this time – will it cross the all-important 2% psychological level? Or would it just stabilize near 1.90%?

Either way, as SIBOR is a benchmark mortgage loan peg, after adding the bank spread, the final floating rate interest homeowners would have to get used to paying in 2019 would certainly be over 2% for most.  In fact, barring a near-term recession, we are expecting interest rates in Singapore to stabilize at slightly above current levels, ie. between 2.20% to 2.50% for most parts of 2019.  And fixed rates would be even higher at 2.50% to 2.80%.

At such elevated levels not seen in Singapore for over a decade, there will be much resistance from homeowners looking to refinance home loan in 2019.

So, before the year is over and while everyone is still busy with all the festivities, it does pay to do a quick check on your current mortgage contract – those with lock-in expiring before August 2019 should take action now and contact us for a review of your home loan refinancing options.  At this moment, we still have fixed rate home loans for private properties starting from 2.30%!

Before another fresh round of rate hikes by lenders in Singapore when we come back in January.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements.  We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals.  That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.