Singapore Rates – No Fundamentals Required For Soaring SOR

I think we shall be seeing a new record in SOR fixings today, so this is a forewarning for those who may be concerned.

SGD forwards trading higher as funding tightens as we head towards month end – 6m last traded at +56 (1.20%) from yesterday’s +53 mid (1.16%). Previous 5 year high set at 1.18896%  on 16 Mar 2015.

The sensationalism is astonishing these days from ground level reporters to the market experts, it is like watching an erupting volcano or approaching tornado or even better, Sharknado 3 premiering this summer.


Today’s breakfast serving Asia ’98 Recalled as Currency Losses Engulf Top-Ranked Singapore.

And yesterday we had an investment bank commentary suggesting that SOR could theoretically rise to 2.7-4.7% even after MAS re-centres (which is almost as good as given) next month and the SGD continues to stay on the weak side of the NEER trading band.

How one dimensional do people get when the limits of their cognitive scopes are stretched ?

“If WTI oil prices fall below Monetary Authority of Singapore’s forecast range of $40-$70/bbl, MAS may have to revise its inflation forecast lower, according to note from HSBC dated March 19; this would be prelude to more dovish slant to exchange-rate policy and signal for higher FX-implied SGD rates

Higher rates will then lead to a deflationary spiral which means the SGD will weaken and we shall have even higher rates !

And thus Singapore has overtaken Australia as the world’s highest yielding AAA rated sovereign debt. It is not just Australia by the way, Apple pays only 0.27% for 10 years in Swiss francs.

Highly qualified economists are all happy with Singapore having higher rates as inflation keeps falling and that it is perfectly logical for the SGD to weaken in excess of its set trading band and SOR to continue to soar because of 1. lower inflation, 2. slower growth. 3. higher US rates and, 4. MAS’s definite re-centreing next month.

Common sense says something is wrong. Not the fact that all of the above reasons are true, but that they are saying exactly the opposite for the countries of the world – LOWER RATES ALL ROUND (except Singapore).

And if we think that the NEER has it tough, spare a thought for our REER (which is NEER adjusted for inflation), which I wrote about 2 years back during happier times.

sgd neer vs reer

Courtesy of Barclays Bank

What I said then ……

“I salute the government for their vision but I do not salute the NEER.  It is evidently clear that the NEER has outlived its purpose and is unable to manage the CPI which is mostly domestically generated. Why go the ROUNDABOUT way  ? to UNDO a FAILING by trying to temper offshore demand for Singapore goods & services to dampen inflation when the NEER is supposed to help fix that ?”

Economists shrug and say SGD Reer has been overvalued for too long and now it is time for shit to hit the fan ! which is true because we have never had the occasion to put the funky SGD policy to the test.

Yes. So instead of all these sensational headlines we are getting to panic the public even when ministers are coming out to say that the SGD is still on an appreciation path (remember they hiked pump prices and bus fares !! which means inflation is not dead and Toto System 7 tickets now cost $7 instead of $3.50), I suggest that people start thinking that perhaps we have been living with a half broken system for too long and some major tweaking would be in order.

My suggestions :

1. Major hike in minimum wage to narrow income gap – inflationary
2. Singapore government/Temasek etc etc. to issue Eurobonds to boost foreign reserves
3. It is a good time to abolish SIBOR and just stick to 1 base rate to avoid future confusion forever4. Move to China’s model of currency basket with monetary policy element
5. It is a good time to develop the very undeveloped securities repo  market now that funding has become a concern

So much for my rants, we have new 6 year records in 1 month SIBOR just fixed at 0.83975% (+0.02883), 3 month SIBOR 0.97275 (+0.033) and 6 month SIBOR 1.05272 (+0.043).

1 month LIBOR 0.176%
3 month LIBOR 0.2703%
6 month LIBOR 0.4091%