So we were proven right again to predict back in November last year that the full effects of the oil price plunge is going to trickle down to the economy in 6 months and we are only 3 months into it. This same view is concurred by US Federal Reserve in its latest policy statement after a 2-day FOMC that “falling gasoline prices have boosted household purchasing power” and “it expects unusually low inflation to gradually pick up as the transitory effects of tumbling oil prices fade.”
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The Fed also upgraded its economic outlook citing strong job gains and the economy expanding at a solid pace. Unemployment fell to a near normal rate of 5.6% now with 252,000 jobs added. Overall whilst Fed acknowledges the easing of inflationary pressures due to lower energy costs, it believes the pace of inflation will pick up in the medium term as markets adjust to the new oil price levels and consumers pick up in spending again. It re-iterated it “can be patient” while it assess the timing of the 1st“lift-off” in interest rates. It also removed a reference in past statements about “keeping rates at near zero for a considerable time” which is a clear signal of its intention.
The way we see it, barring another mini-crisis with Greece exiting Euro which we think is not likely at this point, the 1st rate hike looks quite likely to be in June just before the start of summer spending as Janet Yellen further told reporters it will not happen until the next 2 FOMC meetings at the earliest.
With further strengthening of USD/SGD to 1.35 following the easing of MAS’s monetary policy in Singapore, we now believe 3-month sibor is set to cross 1% before the year is up. This is somewhat higher than what most analysts forecast at the moment.
Over at MortgageWise we ask our clients now to consider locking down fixed rates of 3 years as soon as your lock-in period ends on your current loan, especially when fixed rates are still hovering below 2% p.a.for most banks. At at this point, most of the banks in Singapore providing mortgage loans have shortened their fixed rate packages from 3-4 years down to 2 years. Only 3 banks are still offering 3 year fixed rate home loans for refinancing or new purchase. Talk to us today to find out more before market rates move up further!