I suppose between 0.25% and 0%, some of us may not even blink at our account balances. At work, in a bank, folks would scream blue murder at that because a 0.01% move in rates and they would be rejoicing or grieving away.
The advantage of not being a purist in both economics and finance allows me the luxury of free thought. And my thought is this : What is the use of SIBOR (Singapore Interbank Borrowing Rate) and SIBID (Singapore Interbank Bid Rate) these days ?
There are 2 SIBORs , USD SIBOR and SGD SIBOR, both unrelated to each other because Singapore does not have an interest rate policy and also because SGD is not pegged to the USD like the HKD is. [please note that Singapore has an exchange rate policy whereby the SGD is managed against a basket of currencies and NOT their respective interest rates]
SIBID is lesser known because it has faded in use as a benchmark deposit rate and gets no mention these days, only that it is safe to assume that if there is a SIBOR, then SIBID must exist, likewise with LIBOR and LIBID.
In the spirit of the LIBOR fixing scandal, I have been wondering how lay people will ever get their dues when it seems that only the SEC is the sole beneficiary with their millions in fines ?
Now does anyone remember we used to get paid SIBID before ? Some 15 years ago when I started work on the money markets desk of a, now, scandal riddled bank, I was told, under most conditions, SIBID was used to price deposits. After all, most banks are net borrowers. At this time, I suspect perhaps less than half a dozen banks in Singapore are net lenders of wholesale SGD funds to fellow banks.
The reality of the current environment is that long term(>1 month) borrowing and lending does not take place very much. Some attribute it to the reduction of placement limits after the Lehman crisis.
Which makes deposits even more important to banks yet I see bank accounts frozen at their 0.05%. Which begs the question of HOW IS SIBOR DERIVED in the absence of a wholesale market ?
I have my misgivings which are probably unfounded and am not seeking to challenge the integrity of the SIBOR system. It is just worthwhile to point out a minor flaw here.
SIBOR is required to price loans. Banks do not actively trade it. SIBID is conveniently forgotten since it does not determine deposit rates anymore. This creates an opportunity for banks to keep SIBOR high without having to justify deposit rates to the little people like my 11 y.o. son, who happens to have some savings whittling away against inflation (5%) at 0.05% per annum.
Just my humble opinion.