Chart of the Day: Here’s solid proof that SGD interest rates have fallen sharply

On back of weak loan growth.

The dissipating expectations for a strong USD has sent SGD interest rates plummeting, on back of weak loan growth coupled with a switch by residents from FX to SGD deposits.

According to a report by HSBC, due to its basket FX regime, USD-SGD is more beholden to broad USD movements than other currency pairs.

“A reversal of the QE-fuelled depreciation of the JPY and recovery of the EM/commodity currencies – e.g. MYR and IDR – is putting downward pressure on USD-SGD,” the report noted.

However, the report added that the SGD is likely to underperform those currencies, on valuation and/or yield differential reasons.

“We favour funding Asia FX carry trades out of SGD. A short SGD-IDR trade may also benefit if Indonesia’s tax amnesty program gains traction,” the report noted.