A Last Word : The End of Higher SIBOR For Now
After today’s surprise Monetary Policy Statement from the MAS. People, rejoice. My view is that it is the end of the road for higher SIBOR from now.
MAS did the public a favour with this swoop to end the agonising wait till April for all those mortgages waiting for their fixings.
Why ?
By eliminating the element of speculation, the market will go back to normal as expectations for easing will cease. This is evidenced in today’s reactions in the forwards, SIBOR and SOR, versus the lackadaisical LIBOR.
3M SGD SIBOR, SOR AND USD LIBOR
Post announcement, the SIBOR and SOR have not matched their early Jan highs.
It is the same for the 1 year and 2 year swap rates. Note that 1Y and 2Y USD are still at 0.405% and 0.765% respectively.
1 year and 2 year interest rate swap rates
A comparison of where the rates are priced in 6 month tenors.
Singapore rates are ahead of the curve for once and well ahead of US rates in the short end.
All this in a disinflationary environment mainly because low inflation is bad for Singapore rates like I mentioned last year. https://tradehaven.net/market/why-higher-inflation-is-good-for-singaporeans/
MAS pulls a quick one to save the people from anymore torment because that 40 bucks I save from petrol is not going to make up for the increased monthly mortgage installments.
And to cap it off, we have another 46 bio left in the MAS forwards book which has come down from its high of 126 bio back in Aug 2011 that incidentally coincided with the all time historic low of USDSGD. We can assume that most of that increase back then in Aug-Sep 2011 was due to USDSGD intervention that resulted in USDSGD rising from 1.20 to 1.30 in the short span of a month.
To picture the relationship.
The forwards book is almost always long USD which MAS uses to conduct their daily liquidity operations that has always been invariably to withdraw SGD from the system by lending out the USD.
MAS can now let the fwds, all 46 bio of it, lapse i.e. returning the SGD into the system to inject liquidity without affecting spot fx i.e. USDSGD, like they have been doing for the past 2 years.
To read more about this, refer to the MAS monograph published in 2013, that has done some good in shedding light on the black box . http://www.mas.gov.sg/~/media/MAS/About%20MAS/Monographs%20and%20information%20papers/20130313%20Monetary%20Policy%20Operations%20Monograph.pdf
I guess, just like Switzerland, they are just tired of defending against the tide that will be coming from the ECB, all 1 trillion dollars of it !!
Afterword : To clarify, the SNB and MAS are on different sides of the spectrum – the SNB to weaken their currency and MAS to appreciate. MAS has decided to let it appreciate less while the SNB has decided to unpeg. MAS will continue with intervention, albeit less of it and the SNB is free to do what they want.
Some past articles :
https://tradehaven.net/market/fx/to-singapore-with-what-time-to-look-at-usdsgd/
https://tradehaven.net/uncategorized/fed-in-from-pluto-boj-is-from-mars-and-santa-is-from-singapore/
https://tradehaven.net/market/wheres-the-party-qe-goes-to-singapore/
https://tradehaven.net/market/trading-against-a-black-box-usdsgd/
And the recent public transport fare hikes will be inflationary.
http://www.channelnewsasia.com/news/singapore/from-april-a-2-8-hike-in/1605426.html
Ex-Credit Suisse Trader Doubts Singapore Dollar Decline to Last
(Bloomberg) — Charlie Chan, a former Credit Suisse Group AG proprietary trader who now runs his own hedge fund, said he won’t bet on further declines in the Singapore dollar, even after unexpected monetary policy easing Wednesday by the central bank sent the currency tumbling to a four-year low.
The local dollar is set to strengthen within the next six months as the Monetary Authority of Singapore is just seeking to slow the pace of the currency’s appreciation and is unlikely to shift its stance at its scheduled review in April, Chan, the founder of Singapore-based Charlie Chan Capital Partners, said. Singapore’s currency could also recover when the U.S. dollar pulls back from its rally, said Ali Jalai, managing director of fixed income at Bank of Nova Scotia in the city-state.
Too cheam for a layman like me to understand but can I say :-
1) Depegging like switzerland means SGD will appreciate ? Why not?
2) Singapore in deflationary environment(or rather low inflation currently), so interest rate will be low. But your forward sibor is all higher.
3) Flood of ECB QE to come to singapore then since low interest rate . SO best option is again Properties, though the property Countermeasures like absd and such are meant to protect singaporeans but europeans are free to loan as much as they want to buy a sgd property?
i’M CONfused now…
Aha.
You see CHF defend to weaken and SGD defend to strengthen. Now both give up.
Yes. Because if you know how the exchange rate policy works (read my older articles from 2012-2013) when inflation is lower, the central bank can allow the currency to weaken and when our currency weakens, the forward fx points will go higher which means that SGD rates will go higher when we imply the forward points from an unchanged LIBOR (to avoid arbitrage).
ECB QE will not come here if they expect the currency to weaken. And QE money is short term so no chance they will buy property, only bonds and liquid instruments.