Happy New Year everyone and here’s wishing all our readers here at MortgageWise a great year ahead in 2018 and may you be blessed with great health which is the greatest wealth one can wish for.

Much to everyone’s surprise, SIBOR finally caught up with the rise in US federal funds rate in the final week of 2017 – 1-month SIBOR started the week of 26 Dec at 1.1285 but ended on 29 Dec at 1.3253!  Likewise 3-month SIBOR started the week at 1.24875 but ended at 1.50171!  That is a whopping 25 basis point climb in just four days, a speed which is unseen in a long time.

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What causes the spike no one knows but this comes after the final third rate hike from US Fed earlier in December, and most likely a result of the passing of the biggest corporate tax cuts in the history of US from 35% down to 21% which has been signed into law by President Trump on the eve of Christmas.  The market is pricing in aggressive Fed actions this year with fiscal stimulus in place.

Before we give our forecast for SIBOR (3-month) in 2018, just how did we fare in our forecast in 2017?  We started 2017 with prediction of two rate hikes (US Fed) and for SIBOR to hit 1.50% by end of the year.  However, we revised our forecast in the middle of the year or in June to total 3 rate hikes in 2017 but move down our SIBOR target range to end the year at 1.25 to 1.30 range.

Well it seems we are doing not too bad.  US Fed did keep to its promise of three hikes in 2017 and we overshot our target for SIBOR but only in the final week of 2017!  Had we kept our earlier forecast of 1.50 we would have been spot on for both forecasting the no. of rate hikes in the year and the movement of SIBOR through 2017.  We almost got both correct when SIBOR looks poised to end at 1.25 range if not for the sudden surge of 25 basis points in the final week.

For 2018, we think this will be the year where finally we will see inflation rearing its ugly head in US albeit slowly and hence US Fed is most likely going to keep to its forecasted three hikes in 2018.  There is a huge debate going on in US mainly along party lines where many economists felt that the tax cuts will only serve to make the rich richer and its effect will be short-lived.  GOP leaders and the White house believe the tax cuts will ultimately lead to faster growth in US GDP as companies begin to invest and expand and hire more people with the surplus tax savings which takes effect as early as next month in February.  Democrats blasted the irresponsible fiscal stimulas they feel will worsen the US budget deficit and that companies will simply do shares buyback which ultimate benefits shareholders or capital owners but not the middle class.

As I always said whenever I do this forecast at the start of the year, I am no economist and I do not purport to have all the answers.  I do believe many may have missed out one important factor in this whole equation which is – wages are most likely to rise slowly in an expansionary economy as companies begin to retain their talent pool lest they be poached by competitors.  It is not just a matter of hiring more people but keeping your staff.  I could be wrong, but my take is inflation will pick up slowly when US Fed finally see the rise in wages and they will keep to their 3 hikes in 2018.  That will be our forecast for number of rate hikes.

What this means here in Singapore, 3-month SIBOR is likely to continue its climb and hit 2% by end 2018.  That is only just 50 basis points away.  The big question is whether SIBOR will reverse its course like how it did back in 2016 after rising to 1.25.  I think not.  Back then it was against a backdrop of sluggish growth in the Singapore economy.  This time around, we have all heard the official figures by now that Singapore’s economy has grown 3.5% in 2017 and powering ahead.  The cost of borrowing and liquidity is definitely getting tighter here.

For those looking to refinance home loan Singapore, contact our experienced team of mortgage consultants quickly and lock down fixed rates still as low as 1.68% for 3-year fixed package.  We are expecting banks to vary all the interest rate for their packages especially fixed rates given the sudden surge in SIBOR.

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements.  We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers.  That’s why we always present “whole-of-market” perspective including packages that banks do not pay us.  That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there.